FAR 31.205-28—Other business expenses.
Plain-English Summary
FAR 31.205-28 addresses a narrow set of recurring corporate administrative expenses that may be allowable when they are ordinary, necessary, and properly allocable to the contract. It specifically covers registry and transfer charges tied to changes in ownership of the contractor’s securities, costs of shareholders’ meetings, normal proxy solicitations, preparing and publishing reports to shareholders, preparing and submitting required reports and forms to taxing and other regulatory bodies, incidental costs of directors’ and committee meetings, and other similar costs. In practice, this section matters because it distinguishes routine corporate governance and compliance expenses from unallowable financing, capital-raising, or general corporate overhead items that may not be charged to the Government. Contractors must be able to show that the costs are recurring, similar in nature to the listed items, and not inflated by activities that primarily benefit owners or investors rather than contract performance. Contracting officers and auditors use this rule to test whether corporate-level expenses are properly treated as allowable indirect costs or whether they should be excluded as unallowable business expenses.
Key Rules
Only recurring business costs
The section allows recurring costs of a corporate-business nature, not one-time or extraordinary expenses. The listed items are examples of routine administrative costs that may be allowable when they are normal to the contractor’s business operations.
Securities transfer charges allowed
Registry and transfer charges caused by changes in ownership of the contractor’s securities are allowable. This covers the administrative cost of updating ownership records, not the cost of issuing securities or raising capital.
Shareholder governance costs allowed
Costs of shareholders’ meetings, normal proxy solicitations, and preparing and publishing reports to shareholders are allowable. These are treated as ordinary corporate governance expenses when they are customary and not excessive.
Tax and regulatory filings allowed
Preparing and submitting required reports and forms to taxing and other regulatory bodies is allowable. The key limitation is that the filings must be required by law or regulation and related to ordinary compliance activity.
Board meeting incidentals allowed
Incidental costs of directors’ and committee meetings are allowable. Only incidental expenses are covered, so major entertainment, lavish travel, or unrelated corporate promotion costs would not fit this rule.
Similar costs may qualify
Other similar costs can be allowable if they are comparable in nature to the listed items. The contractor must show that the cost is routine, administrative, and closely related to corporate governance or compliance rather than capital formation or investor relations.
Responsibilities
Contractor
Identify and segregate these corporate administrative expenses in its accounting system, ensure they are recurring and similar to the listed allowable items, and support allowability with documentation showing the nature, purpose, and business necessity of each cost.
Contracting Officer
Review claimed costs for reasonableness, allocability, and compliance with FAR cost principles, and challenge charges that appear to be capital-raising, excessive, or not truly similar to the listed allowable expenses.
Auditor/Defense Contract Audit Agency (or equivalent audit function)
Test whether the costs are properly classified, supported, and consistently treated, and verify that only allowable portions are included in indirect cost pools or proposals.
Agency
Apply the cost principle consistently in evaluating contractor proposals, incurred cost submissions, and billing rates, and ensure unallowable corporate expenses are excluded from Government reimbursement.
Practical Implications
This section is often used to separate ordinary corporate compliance and governance costs from unallowable investor-relations or financing expenses. Contractors should not assume that every corporate-level expense is allowable just because it is common in business.
Documentation matters: invoices, agendas, meeting minutes, filing receipts, and explanations of purpose help show that the cost fits one of the listed categories or is truly similar.
A common pitfall is charging broad shareholder or board-related expenses that include entertainment, travel, lobbying, capital-raising, or merger-related work; those components may need to be removed.
Another risk is misclassifying extraordinary or nonrecurring corporate events as routine business expenses. The rule is aimed at recurring costs, so unusual transactions deserve careful review.
Contractors should review indirect cost pools to ensure these expenses are not mixed with unallowable items, because improper inclusion can lead to questioned costs, billing adjustments, and audit findings.
Official Regulatory Text
The following types of recurring costs are allowable: (a) Registry and transfer charges resulting from changes in ownership of securities issued by the contractor. (b) Cost of shareholders’ meetings. (c) Normal proxy solicitations. (d) Preparing and publishing reports to shareholders. (e) Preparing and submitting required reports and forms to taxing and other regulatory bodies. (f) Incidental costs of directors’ and committee meetings. (g) Other similar costs.