Companies that incur significant costs for training and education of their workforce should have formal policies and procedures in place to ensure reimbursement on their government contracts and subcontracts. As with all types of costs, there are three major components to consider: allowability, allocability and reasonableness.
Allowability
Allowability is defined in FAR 31.205-44 and is clear. Costs related to the field in which employees work (or may reasonably expect to work) are allowable except for:
- Overtime compensation for attending training/education;
- Cost of salaries to attend undergraduate classes or part-time graduate classes during working hours, unless circumstances (well documented) do not permit attendance outside of regular working hours;
- Any costs related to full-time graduate level education beyond two school years or the length of the program, whichever is less.
Costs of scholarships or for anyone other than employees are unallowable unless the employee is overseas. Then dependent education (primary and secondary school) is allowable if suitable public education is not available.
Allocability
Allocability is not always as clear. Education and most training costs have usually been considered an indirect charge since they benefit all cost objectives the employee works on. However, there are circumstances where training costs may be charged directly to the government contract:
- When there is government-required training under one or more specific contracts. An example of this is the 2017 requirement for federal government contractors to provide training on Personally Identifiable Information (PII). This is a contractual requirement and should be allocable to the Federal government contracts as a direct charge.
- When the training is only relevant to one or more government contract(s). For example, DFARS 252.211-7003 requires a unique item identification and valuation system. Training related to implementing this system should be charged directly unless it clearly benefits other cost objectives/contracts.
- Training may be charged directly if all employees related to a contract are at a remote site, where they will never work on other contracts. Unless there is a related overhead pool, all training costs would be charged direct to the contract since it will not benefit other work.
Although we don’t necessarily recommend this, we (through a client) have encountered situations where the Contracting Officer (PCO or ACO specific to the contact) insisted that absolutely all training be indirect. The contractor acquiesced because the contractor/contract had a single contract overhead pool/base (e.g. a remote site with indirect expenses dedicated to the one contract). Thus, the training costs were fully recovered on the contract, but not as a direct charge. A classic case of “form over substance”; however, if this alternative resolves the issue, “go for it” even though it might not be our first choice (which is to charge it directly), but do consider using it because it ultimately complies with the overarching FAR cost allocability principles.
Reasonableness
Reasonableness is always the hardest criteria to prove since it is governed by FAR 31.201-3, which bases reasonableness on what a prudent person would do in the conduct of competitive business, as well as on other clear criteria like “ordinary” and “necessary.” Basically, it is an area that gives room for opinions, but the final criteria is essentially that any significant deviation from the contractor’s established practices is unreasonable.; hence the need for formal policies and procedures. If you have a well-defined policy for payment and charging of training and education costs that meet the allowability and allocability criteria, following it provides you a defense on its reasonableness.
How We Can Help
The team at Redstone Government Consulting, Inc. are well-versed in training and education guidelines and cost allowability, allocability and reasonableness requirements of the FAR. Contact us to create and manage policies which will fit within the regulations.
