FAR 31.205-51—Costs of alcoholic beverages.
Plain-English Summary
FAR 31.205-51 is a very short but absolute cost principle: it addresses the allowability of alcoholic beverages and states that their costs are unallowable. In practice, this means contractors may not charge the Government for beer, wine, liquor, spirits, mixed drinks, or other alcoholic beverages under any contract cost proposal, billing, indirect pool, or final indirect rate calculation. The section exists to draw a bright line for a category of entertainment or hospitality expense that the Government will not reimburse, regardless of whether the alcohol was purchased for employee events, client entertainment, celebrations, or other business-related gatherings. For contractors, the practical significance is straightforward but important: alcohol costs must be excluded from claimed costs and segregated from otherwise allowable event or meal expenses. For contracting officers and auditors, the rule provides a clear basis to question, disallow, or adjust any claimed alcoholic beverage costs that appear in direct or indirect cost submissions.
Key Rules
Alcohol costs are unallowable
The rule is categorical: costs of alcoholic beverages may not be charged to the Government. There is no qualification in this section for purpose, amount, setting, or business justification.
No reimbursement through any cost pool
Because the costs are unallowable, they cannot be included in direct charges, overhead, G&A, or other indirect cost pools. Contractors must keep them out of any cost accumulation or allocation system used for Government billing or pricing.
Separate alcohol from mixed events
If an invoice or event includes both alcoholic and nonalcoholic items, the alcohol portion must be identified and excluded. Contractors should ensure supporting documentation clearly distinguishes unallowable alcohol from potentially allowable food, beverage, or event costs.
Applies regardless of business purpose
The unallowability does not depend on whether the alcohol was purchased for employee morale, customer relations, award ceremonies, holiday parties, or similar activities. The nature of the item controls, not the reason for purchase.
Responsibilities
Contractor
Identify all alcoholic beverage costs, exclude them from claimed costs, and ensure they are not billed, allocated, or reimbursed under Government contracts. Maintain accounting controls and documentation that separate alcohol from allowable costs.
Contracting Officer
Review cost submissions, proposals, and invoices for alcoholic beverage charges and disallow or question them when identified. Ensure contract administration reflects the unallowable nature of these costs.
Auditor/Defense Contract Audit Agency or other reviewing official
Test contractor records and cost pools to verify that alcoholic beverage costs have been excluded from claimed amounts and that any improperly included costs are identified for adjustment.
Agency/Customer
Avoid authorizing reimbursement of alcoholic beverage costs and ensure internal guidance, travel/event approvals, and payment reviews do not permit these costs to be charged to appropriated funds through contracts.
Practical Implications
Contractors should treat alcohol as a nonrecoverable cost from the moment it is purchased; waiting until invoice review or year-end rate development increases the risk of improper billing.
A common pitfall is bundled invoices from restaurants, caterers, or event venues that combine alcohol with meals or room charges; these must be itemized or otherwise supported so the alcohol portion can be removed.
If alcohol is included in an indirect pool, the error can spread across many contracts and create larger questioned-cost adjustments, so accounting controls should prevent it from entering the pool in the first place.
Even small amounts matter because the rule is absolute; there is no de minimis exception in this section.
Contractors should train employees who approve expenses, manage events, or process accounts payable to recognize that alcoholic beverages are never allowable under FAR cost principles.
Official Regulatory Text
Costs of alcoholic beverages are unallowable.