FAR 31.7—Subpart 31.7

Purpose.

FAR 31.701 states the purpose of Subpart 31.7, which is to provide the cost principles used to determine what costs are allowable, allocable, and otherwise applicable to work performed by nonprofit organizations under Government contracts. It also supplies the basic identification definition of a nonprofit organization for purposes of applying these rules. The definition focuses on organizations organized and operated exclusively for charitable, scientific, or educational purposes, with no private inurement of net earnings, no substantial lobbying or political campaign activity, and exemption from Federal income tax under section 501 of the Internal Revenue Code. In practice, this section matters because it tells contracting officers and contractors when the special nonprofit cost principles apply and helps prevent using the wrong cost framework for a contractor’s organizational status. It is the gateway provision for understanding how the Government evaluates nonprofit contract costs and whether an entity qualifies for treatment under this subpart.

General.

FAR 31.702 is a short cross-reference provision that tells readers where to find the cost principles that apply to nonprofit organizations performing work for the Government. It states that the Office of Management and Budget’s Uniform Guidance at 2 CFR part 200, subpart E, and appendix IV, provides the rules for determining allowable and allocable costs for nonprofit organizations, and it applies to work performed under contracts as well as grants and other agreements. The section also points readers to FAR 31.108 for exceptions to those nonprofit cost principles, which means the general rule is not absolute and must be read together with any FAR-specific exceptions. In practice, this section matters because it directs contracting officers, auditors, and nonprofit contractors to the correct cost-principles framework instead of the commercial or for-profit cost rules in FAR Part 31. It is a gateway provision: it does not itself establish detailed allowability standards, but it identifies the controlling external standards and signals that special exceptions may apply. For federal contracting, that means nonprofit contractors must evaluate costs under the Uniform Guidance framework, and agencies must apply those principles consistently when negotiating, pricing, or reviewing nonprofit work.

Requirements.

FAR 31.703 explains how to determine the allowability of costs when a contract points to FAR subpart 31.7 for cost allowability. It says that such contracts are treated as if they refer to the OMB Uniform Guidance at 2 CFR part 200, subpart E, and appendix IV, as those provisions existed on the contract date, and that the contracting officer must use those standards to decide whether costs are allowable. The section also addresses agency policy limits, stating that agencies generally should not add extra restrictions on individual cost items beyond the governing allowability rules. At the same time, it preserves statutory prohibitions by making clear that the costs listed in FAR 31.603(b) are unallowable under 10 U.S.C. 3744 and 41 U.S.C. 4304. In practice, this section matters because it tells contractors and contracting officers which allowability framework controls, prevents agencies from layering on ad hoc cost restrictions, and reinforces that certain costs are barred by law regardless of contract wording.