FAR 31.205-40—Special tooling and special test equipment costs.
Plain-English Summary
FAR 31.205-40 addresses the allowability and allocation of costs for special tooling and special test equipment used to perform Government contracts. It explains what happens when these items are acquired for contract performance, when their costs must be charged directly to the specific Government contract or contracts for which they were obtained, and when the costs are limited to depreciation or amortization instead. The section also covers two important exceptions: items acquired before the contract’s effective date (or replacements for those items), and items the contract schedule specifically excludes. Finally, it addresses situations where items are not treated as special tooling or special test equipment because they can be converted to general-purpose use with relatively minor expense, and it allows the costs of adapting them for the contract and restoring them afterward. In practice, this rule helps contractors and contracting officers determine whether tooling and test equipment costs are directly allocable, recoverable over time, or subject to special treatment based on contract terms and the item’s practical use.
Key Rules
Definitions Control Scope
The terms "special tooling" and "special test equipment" are defined in FAR 2.101, so their meaning must be taken from that definition. Proper classification is the starting point for deciding whether this cost principle applies.
Direct Allocation for Contract Use
The cost of special tooling and special test equipment used in performing one or more Government contracts is allowable and must be allocated to the specific Government contract or contracts for which the items were acquired. This means the costs are generally charged to the benefiting contract(s), not spread broadly without a basis.
Pre-Existing Items Limited to Depreciation
If the contractor acquired the items before the effective date of the contract, or if the items are replacements for such pre-existing items, the cost is allowable only as depreciation or amortization. This applies even if the items are altered or adapted for contract performance.
Contract Exclusions Control Treatment
If the contract schedule specifically excludes the items, their cost is allowable only as depreciation or amortization. A specific exclusion in the schedule overrides the general rule that tooling and test equipment used on the contract may be directly allocated.
Convertible Items May Be Adaptation Costs
When items are disqualified as special tooling or special test equipment because they can be made suitable for general-purpose use with relatively minor expense and have a general-purpose value comparable to their special-use value, the costs of adapting them for the contract and restoring them afterward are allowable. The rule recognizes the temporary conversion cost rather than treating the item as special-use property.
Responsibilities
Contractor
Correctly classify tooling and test equipment under FAR 2.101, determine whether the items were acquired for the Government contract or existed beforehand, and allocate costs in accordance with the contract and this cost principle. The contractor must also track depreciation or amortization when direct allocation is not permitted and support any claimed adaptation or restoration costs.
Contracting Officer
Review proposed or incurred tooling and test equipment costs for allowability, ensure contract schedules clearly state any exclusions, and verify that cost treatment matches the contract’s terms and the item’s status. The contracting officer should also assess whether claimed costs are properly allocated or limited to depreciation/amortization.
Agency
Draft contract schedules and property-related requirements clearly enough to identify excluded items and avoid ambiguity about cost treatment. The agency should also ensure consistent application of the definition in FAR 2.101 and the cost principle across contracts.
Practical Implications
Contractors should document when tooling or test equipment was acquired, why it was needed, and which contract(s) benefited, because allocation depends on that record.
If an item existed before contract award or is specifically excluded by the schedule, contractors cannot simply charge the full cost to the contract; they must use depreciation or amortization instead.
A common pitfall is misclassifying general-purpose-capable items as special tooling or special test equipment without considering whether they can be converted with relatively minor expense.
When equipment is temporarily adapted for a contract, the allowable costs may be limited to the adaptation and restoration work, not the full value of the item.
Clear contract language matters: if the schedule excludes certain tooling or test equipment, that exclusion will govern cost treatment and can prevent later disputes over allowability.
Official Regulatory Text
(a) The terms “ special tooling” and “ special test equipment” are defined in 2.101 . (b) The cost of special tooling and special test equipment used in performing one or more Government contracts is allowable and shall be allocated to the specific Government contract or contracts for which acquired, except that the cost of- (1) Items acquired by the contractor before the effective date of the contract (or replacement of such items), whether or not altered or adapted for use in performing the contract, and (2) Items which the contract schedule specifically excludes, shall be allowable only as depreciation or amortization. (c) When items are disqualified as special tooling or special test equipment because with relatively minor expense they can be made suitable for general purpose use and have a value as such commensurate with their value as special tooling or special test equipment, the cost of adapting the items for use under the contract and the cost of returning them to their prior configuration are allowable.