Government Contracting Industry Alert: DCAA Audit Alert on Identifying Expressly Unallowable Costs

On May 14, 2019, DCAA issued a Memorandum for Regional Directors (MRD), 19-PAC-002(R), revising prior DCAA guidance on identifying expressly unallowable costs. The guidance includes an updated listing of Federal Acquisition Regulation (FAR) 31 and Defense Federal Acquisition Regulation Supplement (DFARS) 231 cost principles that meet the definition of expressly unallowable costs. The May 14th MRD removed several cost principles previously considered to be unallowable, and guidance was revised for several cost principles, including those related to lobbying, compensation, and organization costs.


DCAA also updated its guidance for determining whether a cost principle identifies expressly unallowable costs. The new guidance primarily relies on recent court cases and supersedes 2014 and 2015 guidance. In summarizing the changes to guidance on expressly unallowable costs, the MRD states the following:
In order for a cost to be expressly unallowable, the cost principle must state in direct terms that the costs are unallowable, or leaves little room for interpretation or differences of opinion as to whether the particular cost meets the allowability criteria. The Government must show that it was unreasonable, under all circumstances, for a person in the contractor’s position to conclude that the costs are unallowable.


DCAA’s May 14, 2019 MRD can be found here.



If you have any questions or comments about this topic, please contact Thomas Yankanich, Director, Audit & Accounting at Email or 215-441-4600.

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