FAR 31.205-32—Precontract costs.
Plain-English Summary
FAR 31.205-32 addresses when a contractor may charge precontract costs to a federal contract. It defines precontract costs as costs incurred before the contract’s effective date that are directly tied to the negotiation and anticipated award of the contract, and only when incurring those costs is necessary to meet the proposed delivery schedule. The section also sets the key allowability test: the costs are allowable only to the extent they would have been allowable if incurred after contract award, which ties this rule back to the general cost principles in FAR Part 31. It is a narrow exception to the normal rule that costs incurred before award are not automatically chargeable to the government. In practice, this section matters when contractors begin work early to avoid schedule slippage, but it also creates risk if the contractor starts spending before award without a clear contractual basis or without ensuring the costs are otherwise allowable. The reference to FAR 31.109 signals that precontract costs may also be addressed through advance agreements or other cost allowability arrangements.
Key Rules
Costs must be pre-award
The costs must be incurred before the effective date of the contract. Costs incurred after award are not precontract costs and are evaluated under the normal cost principles for post-award performance.
Directly tied to negotiation
The costs must be incurred directly pursuant to the negotiation and in anticipation of the contract award. This means there must be a clear connection between the spending and the specific expected contract, not merely general business development or speculative preparation.
Necessary for schedule compliance
The incurrence of the costs must be necessary to comply with the proposed contract delivery schedule. Early spending is not allowable simply because it is convenient; it must be needed to meet the anticipated schedule requirements.
Must be otherwise allowable
Precontract costs are allowable only to the extent they would have been allowable if incurred after the contract date. If a cost would be unallowable under FAR Part 31 after award, it remains unallowable even if incurred before award.
Subject to FAR 31.109
This section should be read with FAR 31.109, which addresses advance agreements. In practice, parties often use advance agreements to clarify whether specific pre-award costs will be recognized and under what conditions.
Responsibilities
Contractor
Ensure any pre-award spending is directly related to the anticipated contract, is necessary to meet the proposed delivery schedule, and would be allowable if incurred after award. The contractor should document the basis for incurring the costs and be prepared to support allowability, allocability, and reasonableness.
Contracting Officer
Evaluate whether proposed precontract costs are sufficiently connected to the anticipated award and whether they are necessary for schedule compliance. The contracting officer may use an advance agreement or other written understanding to define what pre-award costs, if any, will be accepted.
Agency
Apply the cost principle consistently and ensure precontract costs are only recognized when they meet the rule’s narrow conditions. The agency should also ensure contract terms and any advance agreements clearly address treatment of pre-award costs.
Practical Implications
Contractors should not assume all early-start costs are reimbursable; only costs meeting the specific precontract standard may be charged.
Documentation is critical. Contractors should keep records showing why the costs were incurred before award, how they relate to the expected contract, and why they were needed to meet the schedule.
A cost can still be unallowable even if it was incurred in good faith before award, if it would not have been allowable after award under FAR Part 31.
Advance agreements can reduce disputes by clarifying which pre-award costs are acceptable, especially on urgent or compressed-schedule procurements.
A common pitfall is treating proposal, marketing, or general startup expenses as precontract costs when they are not directly tied to the specific anticipated contract.
Official Regulatory Text
Precontract costs means costs incurred before the effective date of the contract directly pursuant to the negotiation and in anticipation of the contract award when such incurrence is necessary to comply with the proposed contract delivery schedule. These costs are allowable to the extent that they would have been allowable if incurred after the date of the contract (see 31.109 ).