FAR 31.104—Contracts with educational institutions.
Plain-English Summary
FAR 31.104 explains how the cost principles apply when the Government contracts with educational institutions for research and development, training, and other work. It defines the covered population by cross-referencing the OMB Uniform Guidance definition of institutions of higher education at 2 CFR part 200, subpart A, and 20 U.S.C. 1001, so the rule is not limited to colleges and universities in the everyday sense but to institutions that meet those regulatory definitions. The section tells contracting officers to incorporate the cost principles and procedures in FAR subpart 31.3 by reference in cost-reimbursement contracts with educational institutions, and it identifies three specific uses for those principles: determining reimbursable costs, negotiating indirect cost rates, and settling costs in cost-reimbursement terminations. It also states that the same cost principles serve as a guide when evaluating costs for fixed-price contract negotiations and termination settlements. In practice, this section matters because educational institutions often have unique accounting structures, indirect cost arrangements, and research-related cost practices, so the Government needs a clear framework for allowability, allocability, and reasonableness. The rule helps ensure consistent treatment of costs across awards and modifications, while also signaling that the cost principles are relevant even when the contract type is not cost-reimbursement.
Key Rules
Covered institutions defined by cross-reference
This section applies to educational institutions performing research and development, training, and other work, and it uses the Uniform Guidance and 20 U.S.C. 1001 to define which entities qualify. Contracting officers should confirm the recipient meets the regulatory definition before applying this section.
Subpart 31.3 governs cost-reimbursement awards
For cost-reimbursement contracts with educational institutions, the contracting officer must incorporate FAR subpart 31.3 by reference. Those cost principles and procedures become the basis for determining what costs are reimbursable under the contract and related cost-reimbursement subcontracts.
Indirect cost rates must be negotiated using these principles
The cost principles in subpart 31.3 are also the framework for negotiating indirect cost rates with educational institutions. This means the Government should use the same allowability and allocation concepts when establishing or reviewing indirect rates.
Termination settlements follow the same cost basis
When a cost-reimbursement contract with an educational institution is terminated, the contracting officer uses subpart 31.3 as the basis for settling costs, together with the termination rules in FAR subpart 49.3 and 49.109-7. This promotes consistent treatment of costs in closeout and settlement actions.
Guidance for fixed-price negotiations
Even though the section is aimed at cost-reimbursement contracts, the cost principles in this subpart are to be used as a guide when evaluating costs for fixed-price contract negotiations. They also guide termination settlements for fixed-price work, helping the Government assess proposed costs and settlement amounts.
Applies to contract modifications as well
The opening sentence makes clear that the category includes contract modifications, not just new awards. Modifications involving educational institutions should therefore be reviewed with the same cost-principles framework when they affect research, training, or other covered work.
Responsibilities
Contracting Officer
Identify whether the contractor is an educational institution covered by the cited definitions, and incorporate FAR subpart 31.3 by reference in cost-reimbursement contracts. Use those principles to determine reimbursable costs, negotiate indirect cost rates, and settle termination costs, and apply them as guidance in fixed-price negotiations and termination settlements.
Educational Institution Contractor
Maintain accounting and cost records that support application of FAR subpart 31.3, including documentation for direct costs, indirect costs, and termination-related costs. Present proposed costs and indirect rate information in a form that can be evaluated under the applicable cost principles.
Cost-Reimbursement Subcontractor Educational Institution
Comply with the same cost-principles framework for reimbursable costs under cost-reimbursement subcontracts. Support subcontract cost claims and indirect cost treatment with adequate records and consistent allocation methods.
Agency
Ensure contracting personnel apply the correct regulatory definition of educational institution and use the proper cost-principles framework across awards, modifications, rate negotiations, and terminations. Provide oversight and consistency so similar institutions and similar costs are treated uniformly.
Practical Implications
This section is a reminder that educational institutions are not evaluated under a special, separate cost system; instead, FAR subpart 31.3 is the core reference point for allowability and reimbursement in cost-reimbursement work.
A common pitfall is failing to confirm whether the entity actually meets the regulatory definition of an educational institution before applying these rules, which can lead to using the wrong cost framework.
Another frequent issue is treating indirect cost rate negotiations as purely administrative; in fact, they must be grounded in the same cost principles used for reimbursable costs.
For terminations, contracting officers should coordinate the cost-principles analysis with the termination procedures in FAR part 49 rather than assuming the settlement amount can be negotiated informally without a cost basis.
For fixed-price actions, the section does not make subpart 31.3 controlling, but it does require using those principles as a guide, so proposed costs should still be screened for reasonableness, allocability, and consistency with the cost principles.
Official Regulatory Text
This category includes all contracts and contract modifications for research and development, training, and other work performed by educational institutions (defined as institutions of higher educations in the OMB Uniform Guidance at 2 CFR part 200 , subpart A, and 20 U.S.C. 1001 ). (a) The contracting officer shall incorporate the cost principles and procedures in subpart 31.3 by reference in cost-reimbursement contracts with educational institutions as the basis for- (1) Determining reimbursable costs under the contracts and cost-reimbursement subcontracts thereunder performed by educational institutions; (2) Negotiating indirect cost rates; and (3) Settling costs of cost-reimbursement terminated contracts (see subpart 49.3 and 49.109-7 ). (b) The cost principles in this subpart are to be used as a guide in evaluating costs in connection with negotiating fixed-price contracts and termination settlements.