FAR 31.108—Contracts with nonprofit organizations.
Plain-English Summary
FAR 31.108 is a cross-reference provision that tells readers where to find the cost principles for contracts with nonprofit organizations. It explains that Subpart 31.7 contains the principles and standards for determining allowable costs for nonprofit organizations other than educational institutions, while pointing readers to Subpart 31.3 for educational institutions, Subpart 31.6 for State and local governments, and Subpart 31.2 for certain nonprofit organizations exempted under the OMB Uniform Guidance at 2 CFR part 200, appendix VIII. In practical terms, this section does not itself set detailed cost rules; instead, it directs contracting officers, contractors, and auditors to the correct FAR subpart based on the type of nonprofit entity involved. Its purpose is to prevent misapplication of cost principles and ensure the government uses the proper allowability framework for each organizational category. For federal contracting, this matters because the applicable cost rules can differ significantly depending on whether the contractor is a nonprofit, an educational institution, a State or local government, or a nonprofit covered by the Uniform Guidance exemption. Correctly identifying the organization type is therefore a threshold issue before evaluating costs, negotiating indirect rates, or reviewing claimed expenses.
Key Rules
Subpart 31.7 governs nonprofits
Contracts with nonprofit organizations other than educational institutions are subject to the cost principles in FAR Subpart 31.7. This is the primary rule referenced by this section for determining which costs are applicable and allowable.
Educational institutions use Subpart 31.3
Nonprofit educational institutions are not covered by Subpart 31.7. Their cost principles are found in FAR Subpart 31.3, so the organization’s status as an educational institution changes the governing cost rules.
State and local governments use Subpart 31.6
If the contractor is a State or local government, the applicable cost principles are in FAR Subpart 31.6 rather than Subpart 31.7. This distinction matters because government entities are treated under a separate cost framework.
Uniform Guidance exemptions may apply
Certain nonprofit organizations are exempted under the OMB Uniform Guidance at 2 CFR part 200, appendix VIII. For those organizations, FAR directs users to Subpart 31.2 for the applicable cost principles instead of Subpart 31.7.
Organization type controls the analysis
The section’s core function is to route the reader to the correct cost-principles subpart based on the contractor’s legal and organizational status. Before evaluating costs, the parties must first identify which category the organization falls into.
Responsibilities
Contracting Officer
Identify the contractor’s organizational type before applying cost principles and use the correct FAR subpart for cost allowability, negotiation, and administration. Ensure solicitations, pricing reviews, and contract administration do not rely on the wrong nonprofit cost framework.
Contractor
Disclose and confirm its organizational status accurately so the government can apply the proper cost principles. Maintain accounting and cost records consistent with the governing FAR subpart and any applicable Uniform Guidance treatment.
Auditor/Cost Analyst
Verify that claimed costs are evaluated under the correct cost-principles subpart for the entity type involved. Flag any misclassification of the organization that could lead to improper allowability determinations or indirect cost treatment.
Agency
Apply the correct regulatory framework in procurement planning, cost policy, and oversight for nonprofit contracts. Train acquisition and finance personnel to distinguish among nonprofit educational institutions, other nonprofits, State and local governments, and exempt nonprofit entities.
Practical Implications
This section is mainly a roadmap, but it is critical because using the wrong cost-principles subpart can lead to incorrect allowability decisions, pricing errors, and disputes.
A common pitfall is assuming all nonprofits are treated the same; educational nonprofits, other nonprofits, and exempt nonprofits may fall under different FAR subparts.
Contracting officers should confirm the entity’s legal status early, especially when the organization has mixed functions or affiliated entities that could be classified differently.
Contractors should be prepared to support which cost principles apply to them, since that affects indirect cost proposals, billing, and audit support.
When in doubt, the first question is not whether a cost is reasonable, but which regulatory regime governs the organization in the first place.
Official Regulatory Text
Subpart 31.7 provides principles and standards for determining costs applicable to contracts with nonprofit organizations other than educational institutions (see subpart 31.3 ), State and local governments (see subpart 31.6 ), and those nonprofit organizations exempted under the OMB Uniform Guidance at 2 CFR part 200 , appendix VIII (see subpart 31.2 for the cost principles applicable to nonprofit organizations exempt from the cost principles in the OMB Uniform Guidance at 2 CFR part 200 ).