FAR 31.205-12—Economic planning costs.
Plain-English Summary
FAR 31.205-12 addresses the allowability of economic planning costs under the cost principles for government contracts. It defines these costs as general long-range management planning aimed at the future overall development of the contractor’s business, including planning that considers possible economic dislocations or fundamental changes in the markets where the contractor currently operates. The section’s main purpose is to distinguish allowable strategic, forward-looking business planning from other types of costs that are treated differently under the FAR. It also draws two important boundaries: it excludes organization or reorganization costs, which are covered by FAR 31.205-27, and it points readers to FAR 31.205-38 for market planning costs that are not economic planning costs. In practice, this means contractors may charge certain strategic planning expenses to government contracts if they fit the definition and are otherwise reasonable, allocable, and compliant with the cost principles, while contracting officers and auditors must ensure the costs are not really startup, restructuring, or marketing-related expenses in disguise.
Key Rules
Long-range planning is allowable
Economic planning costs are allowable when they are tied to general, long-range management planning for the contractor’s overall business development. The planning must be forward-looking and strategic, not tied to a specific contract performance issue or short-term operational task.
Must concern overall business development
The costs must relate to the future overall development of the contractor’s business, not just a single project, product line, or immediate sales effort. This makes the rule broader than contract-specific planning but narrower than ordinary business expenses.
May address market disruption
The definition expressly includes planning that considers possible economic dislocations or fundamental changes in the markets where the contractor currently does business. This recognizes that contractors may need to plan for major shifts in demand, supply, regulation, or market structure.
Organization and reorganization costs excluded
Economic planning costs do not include organization or reorganization costs. Those costs are governed separately by FAR 31.205-27, so contractors must not classify restructuring, merger, consolidation, or similar transition costs as economic planning.
Other market planning may fall elsewhere
The section directs readers to FAR 31.205-38 for market planning costs other than economic planning costs. If the expense is really market research, sales planning, or similar activity rather than long-range economic planning, a different cost principle may apply.
Responsibilities
Contractor
Identify and document economic planning costs as long-range strategic planning expenses for overall business development. Ensure the costs are not organization or reorganization costs and are not more properly treated as another type of market planning cost under a different FAR provision.
Contracting Officer
Evaluate whether claimed costs fit the definition of allowable economic planning costs and whether they are properly segregated from unallowable or separately governed costs. Use the cost principle framework to challenge misclassified restructuring or marketing expenses.
Auditor/Cost Reviewer
Test the nature, purpose, and documentation of the costs to confirm they are general long-range management planning costs and not organization, reorganization, or other noncovered expenses. Verify consistency with the contractor’s accounting treatment and supporting records.
Agency
Apply the FAR cost principles consistently when reviewing contractor proposals, incurred cost submissions, and indirect cost pools. Ensure that allowable economic planning costs are not disallowed merely because they are strategic, while still preventing improper charging of excluded costs.
Practical Implications
This section matters when contractors incur strategic planning expenses such as long-term business forecasting, scenario planning, or analysis of major market changes. Those costs may be allowable if they are genuinely about overall business development and are properly documented.
A common pitfall is mislabeling restructuring, merger integration, downsizing, or corporate reorganization costs as economic planning. If the expense is tied to changing the organization itself, FAR 31.205-27 is the more relevant rule, not this one.
Another risk is confusing economic planning with market planning or sales planning. If the work is really about market entry, customer targeting, or promotional strategy, the contractor should check FAR 31.205-38 rather than relying on this section.
Contractors should maintain clear descriptions, internal approvals, and accounting codes that show the purpose of the planning activity. Good documentation helps demonstrate that the costs are general and long-range, not contract-specific or otherwise unallowable.
Contracting officers and auditors should focus on substance over labels. The key question is whether the cost is truly long-range economic planning for the business as a whole, or whether it is actually a different kind of cost that the FAR treats separately.
Official Regulatory Text
Economic planning costs are the costs of general long-range management planning that is concerned with the future overall development of the contractor’s business and that may take into account the eventual possibility of economic dislocations or fundamental alterations in those markets in which the contractor currently does business. Economic planning costs are allowable. Economic planning costs do not include organization or reorganization costs covered by 31.205-27 . See 31.205-38 for market planning costs other than economic planning costs.