RGCI- Allowable vs Unallowable_ Marketing, Advertising, and Public Relations

FAR Part 31.205 -1 – Public Relations and Advertising Costs

“Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” (American Marketing Association)

“Advertising is the action of calling something to the attention of the public especially by paid announcements.” (Merriam-Webster)

“Public relations (PR) is a strategic communication process that builds mutually beneficial relationships between organizations and their publics.” (Public Relations Society of America (PRSA))

What Do These Terms Mean?

Think of “marketing” as an umbrella term where “advertising” and “public relations” fall under that catch-all term. Marketing is, essentially, the entire process by which you create, sell, and communicate your products or services. Advertising and Public Relations are two separate, yet closely related, processes in the marketing flow. Let’s talk about the difference between the two.

Public Relations Primer

When most people hear the term “Public Relations” they think of big Hollywood scandals and things gone wrong with companies. In actuality, most public relations teams deal with more positive things like philanthropy, events, and things of that nature. While crisis communication is sometimes necessary, it isn’t always the focus of PR as you know it. In the definition of PR above from the PRSA, “mutually beneficial relationships between organizations and their publics” should be the key takeaway. PR is meant to strengthen bonds and understanding of a company’s image.

Advertising—Getting Your Face Out There

Advertising is mainly identified by paid media which can include but is not limited to billboards, magazines, newspapers, television and radio commercials, and direct mail. Advertising is meant to relay a message specifically for something with the intent to sell or attract consumers.

What Is and Is Not Allowable

So, how does all this relate to your Government contract? FAR Part 31.205-1 lays out what you can and can’t spend your contract money on (allowable and unallowable costs) regarding public relations and advertising costs.

Allowable – Advertising (d)

  • Costs specifically required by contract OR
    • Costs that arise from requirements of Government contracts that are exclusively for
      • Acquiring scarce items for contract performance.
      • Disposing of scrap or surplus materials acquired for contract performance.
    • Costs of activities to promote sales of exports from the United States
      • MINUS things like models, gifts, souvenirs, alcoholic beverages, or entertainment.
    • Recruitment Costs
      • Help-wanted advertising
        • Must describe specific positions or classes of positions.
        • Cannot include material that is not relevant for recruitment purposes.
          • Including extensive illustrations or descriptions of the company’s products or capabilities.
        • Operating an employment office needed to secure and maintain an adequate labor force.
        • Operating an aptitude and educational testing program.
        • Employment agencies, not in excess of standard commercial rates.

Allowable – Public Relations (e)

  • Costs specifically required by contract
  • Costs of the following:
    • Responding to inquiries on company policies and activities.
    • Communicating with the public, press, stockholders, creditors, and customers.
    • Conducting general liaison with news media and Government public relations officers with only communication necessary to keep the public informed on matters of public concern, notice of contract awards, plant closings or openings, employee layoffs or rehires, financial information, etc.
    • Costs of participation in community service activities (NOT monetary donations)
      • Blood banks, charity drives, savings bon drives, disaster assistance, etc.
      • Everything above MINUS the costs associated with the donation of excess food to nonprofit organizations in accordance with the Federal Food Donation Act of 2008.
    • Costs of plant tours and open houses
      • MINUS the cost of promotional material, motion pictures, videotapes, brochures, handouts, magazines, and other media that are designed to call favorable attention to the contractor and its activities.
    • Costs of keel laying, ship launching, commissioning, and roll-out ceremonies
      • Only to the extent specifically provided for by contract.

Even in that list of allowable costs, you can see there are some restrictions to go along with them, just like everything else in the Government.  Now, we’ll list things that are expressly unallowable costs. Some of the restrictions are listed again in the unallowable portion, just for clarification.  

Unallowable – Advertising and Public Relations

  • Basically, everything else! The Government doesn’t believe in anything fun. But specifically:
    • All public relations and advertising costs, other than those specified in paragraphs (d) and (e), (The allowable portion we just listed above), whose primary purpose is to promote the sale of products or services by stimulating interest in a product or product line (except for those costs made allowable under 31.205-38(b)(5), Direct Selling) (see definition below), or by disseminating messages calling favorable attention to the contractor for purposes of enhancing the company image to sell the company’s products or services.
      • To clarify – 31.205-38(b)(5) states: Direct selling. Direct selling efforts are those acts or actions to induce particular customers to purchase particular products or services of the contractor. Direct selling is characterized by person-to-person contact and includes such efforts as familiarizing a potential customer with the contractor’s products or services, conditions of sale, service capabilities, etc. It also includes negotiation, liaison between customer and contractor personnel, technical and consulting efforts, and individual demonstrations, and any other efforts having as their purpose the application or adaptation of the contractor’s products or services for a particular customer’s use. The cost of direct selling efforts is ALLOWABLE.
    • All costs of trade shows not containing a significant effort to promote export sales. (We get this question a lot)
    • Costs of sponsoring meetings, conventions, symposia, seminars, and other events where the main purpose of the event isn’t to spread technical information or stimulation of production.
    • Costs of ceremonies such as corporate celebrations and new product announcements
    • Costs of promotional materials, motion pictures, videotapes, brochures, handouts, magazines, and other media that are designed to call favorable attention to the contractor and its activities.
    • Costs of souvenirs, models, imprinted clothing, buttons, and other mementos provided to customers or the public. (Bye-bye company logo shirts and hats)
    • Costs of memberships in civic and community organizations.
    • Costs associated with the donation of excess food to nonprofit organizations in accordance with the Federal Food Donation Act of 2008.

Read the Fine Print

To summarize, stick to your contracts. If it doesn’t say it’s an allowable cost and it’s in the unallowable list, it’s probably safe to say they’re not giving you that money back. You can still communicate with your public(s) and throw out some announcements that you’re hiring, just make sure it’s within the constraints of FAR part 31.205-1.

Still confused? That’s ok! Redstone Government Consulting is here to help. We ensure you understand what you need to know with our specialized compliance trainings and consulting services. Contact us today to see what we can offer you and your company!


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Written by Redstone Team

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Small Business Compliance