Professional and consultant service fees represent costs of 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. Such costs include those of outside accountants, lawyers, actuaries, and marketing consultants. Contractors should be requested to obtain 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.
1- What other cost principles should you consider?
The cost principle covering outside professional and consultant services is contained primarily in
(1) FAR 31.205-33, Professional and consultant service costs.&
However, consider the following cost principles in determining allowability since efforts covered by these cost principles are often performed by consultants:
(2)FAR 31.205-27 Organization costs;&
(3) 31.205-30 Patent costs; and
(4) 31.205-47 Costs associated with a legal or administrative proceeding.&
2- Are these costs allowable?
Properly supported professional and consultant service costs are generally allowable per FAR 31.205-33 when reasonable in relation to the services rendered, unless they are for activity made unallowable by other cost principles.&
Three Key factors, among others, an auditor will consider in determining Allowability are:
(1) The nature and scope of the services rendered in relation to the service required,
(2) The impact of Government contracts on the contractors business, and
(3) Whether the service can be performed more economically by employment rather than by contracting.
3- Can we engage services on a Retainer-Fee basis?
Contractors may engage outside professionals and consultants on a retainer-fee basis. &FAR 31.205-33(e) requires that allowable retainer fees be supported by evidence that:
(1) The services covered are necessary and customary,
(2) The fee is reasonable in comparison with maintaining an in-house capability, and
(3) The level of past services justifies the amount of the retainer fees. &Retainer agreements are not required to (and generally do not) have specific statements of work. However, supporting documentation is still required.
4- What is considered Adequate Supporting Evidential Matter?
FAR 31.205-33(f) contains three specific documentation requirements that must be met for professional and consultant service costs to be allowable. These are:
(1) Details of all agreements (e.g., work requirements, rate of compensation, and nature and amount of other expenses if any) and details of actual services performed.&
(2) Invoices or billings submitted by consultants, including sufficient detail as to the time expended and nature of the actual services provided, and
(3) Consultant work products and related documents, such as trip reports indicating persons visited and subjects discussed, minutes of meetings, and collateral memoranda and reports.
5- Does Auditor Judgment play a role in determining adequacy of support?
Although auditors may not substitute their judgment for the explicit documentation requirements identified above, auditor judgment remains important for determining if the evidence provided in each of the three categories is adequate.&In order to reach a well-reasoned audit conclusion on professional and consultant service costs, auditors must have sufficient and relevant evidence to determine the nature and scope of the work actually performed.
6- Will we be provided time to respond to any concerns or issues prior to auditor rendering of an opinion?
The contractor is responsible for producing adequate evidential matter to support the claimed costs. &If the auditor determines that the claimed costs require additional support, then he or she should notify the contractor as to the additional data required. The auditor should provide the contractor with a reasonable period of time to respond. &&However, if the contractor fails to respond within this period, the costs could be questioned as expressly unallowable per FAR 31.205-33(f).
7- What types of activities are unallowable?
FAR 31.205-33(c) lists four expressly unallowable activities.
(1) Services to improperly obtain, distribute, or use information or data protected bylaw or regulation (FAR 31.205-33(c)(1)).
(2) Services that are intended to improperly influence the contents of solicitations, the evaluation of proposals or quotations, or the selection of sources for contract award (FAR 31.205-33(c)(2)).
(3) Any services performed or otherwise resulting in violation of any statute or regulation prohibiting improper business practices or conflicts of interest (FAR 31.20533(c)(3)), and
(4) Services performed which are not consistent with the purpose and scope of the services contracted for or agreed to (FAR 31.205-33(c)(4)).
8- Anything else we should know?
Professional and consultant service costs may be unallowable under the provisions of other cost principles such as the ones identified above. You should also consider the following,
(1) Costs contingent upon recovery from the Government (FAR 31.205-33(b)).
(2) Costs of planning or executing organization and reorganization (FAR 31.20527(a)(1)).
(3) Costs of resisting or planning to resist a reorganization (FAR 31.205-27(a)(2)).
(4) Costs of raising capital (FAR 31.205-27(a)(3)).
(5) Costs of financing and refinancing operations, preparation of prospectuses, and preparation and issuance of stock rights (FAR 31.205-20).
(6) Costs related to bad debts (FAR 31.205-3).
(7) Costs related to legal and other proceedings (FAR 31.205-47).
(8) Reasonableness (FAR 31.201-3).
(9) Allocability (FAR 31.201-4).&
(10) Costs incurred by employees or officers of the contractor for purposes which are similar to those classified as unallowable by FAR 31.205-33 are also unallowable even though that cost principle specifically applies to outside professionals and consultants.