Federal Acquisition Regulation (FAR)

If you’re a federal contractor, at some point you will be faced with understanding—and complying with—the Federal Acquisition Regulation (FAR). In this guide, you’ll learn the basics of what the FAR is and get an understanding of a few of the most important parts of the regulation.

What Is The Federal Acquisition Regulation?

The Federal Acquisition Regulation (FAR) is all about allowability: it says what you can charge to the government through a government contract—and what you cannot.

According to GSA.gov, FAR is “the primary regulation for use by all Federal Executive agencies in their acquisition of supplies and services with appropriated funds.”

The purpose of FAR is to provide a set of consistent, uniform policies and procedures within the federal acquisition process. It defines when, and to what extent, costs can be recovered under a federal government contract. The FAR also includes standard solicitation provisions and contract clauses, as well as supplements like the Defense Federal Acquisition Regulation Supplement (DFARS).

Who creates the federal acquisition regulation?

The FAR was issued more than 40 years ago through the Office of Federal Procurement Policy Act of 1974. It lives on today as the standard federal agencies must follow when buying goods and services. It’s jointly issued and maintained by the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).

Federal Acquisition Regulation & Cost Accounting Standards

Still unraveling the mystery of Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) compliance? The exemptions, standards and disclosures can often feel like a puzzle never to be solved – until now.

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The purpose of the Federal Acquisition Regulation is to provide a published standard set of policies and procedures to be used by federal agencies during the procurement process. Part of the vision of the FAR is to deliver the best value product or service, while maintaining the public’s trust and meeting public policy objectives.

As defined by section 1.102, the Federal Acquisition System will:

• Satisfy the customer in terms of cost, quality, and timeliness of the delivered product or service by, for example:
  • Maximizing the use of commercial products and commercial services
  • Using contractors who have a track record of successful past performance or who demonstrate a current superior ability to perform
  • Promoting competition
• Minimize administrative operating costs
• Conduct business with integrity, fairness, and openness
• Fulfil public policy objectives

FAR compliance is a process that federal government contractors must adhere to in order to provide goods or services to federal agencies.

FAR is one of the major differences between contracting with the federal government versus contracting with a commercial entity. One of the most common questions contractors have relating to FAR is: “Does FAR apply to all government agencies?” The answer is: No.

FAR only governs contracts with the agencies of the Executive branch. Contracts with the Legislative branch and the judicial branch come under separate regulations.

Contracts with the Legislative branch (i.e., Congress) are governed by the Congressional Budget Office (CBO). Contracts with the judicial branch are governed by the Judiciary Policy – Volume 14 (Procurement).

That said, most contracts with the federal government are governed by FAR and each contract will contain specific FAR clauses that are applicable to the contract. It is the contractor’s responsibility to read each contract and understand each FAR clause referenced in the contract prior to signing a binding agreement. Specifically, FAR is applicable to solicitations (IFB, RFP, RFQ, RFI), federal prime contracts, and subcontracts under federal prime contracts.

Contractors are not only responsible for reading each contract, but also for understanding all FAR clause references prior to signing a bid agreement. This can be a bit of a challenge because there are eight subchapters with a total of 53 parts.

The subchapters and parts cover everything from competition and acquisition planning and socioeconomic programs, to general contracting requirements, special categories of contracting, and contract management.

However, two of the most relevant parts are FAR Parts 31 and 52, which contain guidance on Cost Principles and Contract Clauses. Let’s take a closer look at each of these along with other key Parts.

FAR Part 31

Generally, FAR Part 31 details contract cost principles and procedures. More specifically, FAR Part 31 breaks down to:

• FAR Part 31.201-3: determining reasonableness
• FAR Part 31.201-4: determining allocability
• FAR Part 31.201-6: accounting for unallowable costs.

What can be even trickier for contractors with FAR Part 31.201-6 is that some unallowable costs are always unallowable and others are usually unallowable. A list of these unallowable costs is included in Deltek’s guide: Understanding the Basics of FAR & CAS.

FAR Part 52

On the other side of the coin, FAR Part 52 details allowable costs and payments. For example: direct labor, direct travel, supplies, services–and includes information on invoicing, reimbursement, bill rates, and payments. One of the most important things to note in this section is the list of Reimbursable Costs. These include:

• Direct Labor
• Direct Travel
• Materials Issued from Inventory
• Supplies
• Services
• Indirect Expenses

Other important billing and payment information in FAR Part 52.216-7 can be found in these sections:

• 52.216-7(d): Submission of Final Indirect Cost Rate Proposal
• 52.216-7(e): Indirect Expense Rates for Billing Purposes
• 52.216-7(g): Audit of Interim Billings
• 52.216-7(h): Stipulates Requirements for Final Payment.

FAR Part 17

FAR Part 17 covers special contracting methods including multi-year contracting, options, and leader company contracting. Multi-year contracting is encouraged to lower costs, reduce the administrative burden of contracts, sustain continuity of production, and stabilize contractor workforces among other reasons. One area of clarification in Part 17, is the different requirements for DoD, NASA, and the Coast Guard when entering in a multi-year contract.

As defined in Part 17.105-1, For DoD, NASA, and the Coast Guard, the head of the agency may enter into a multi-year contract for supplies if:

1. The use of such a contract will result in significant savings of the total estimated costs of carrying out the program through annual contracts;
2. The minimum need to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities;
3. There is a stable design for the supplies to be acquired, and the technical risks associated with such supplies are not excessive;
4. There is a reasonable expectation that, throughout the contemplated contract period, the head of the agency will request funding for the contract at a level to avoid contract cancellation; and
5. The estimates of both the cost of the contract and the cost avoidance through the use of a multi-year contract are realistic.
   3. The multi-year contracting method may be used for the acquisition of supplies or services.
   4. If funds are not appropriated to support the succeeding years’ requirements, the agency must cancel the contract.

FAR Part 19

FAR Part 19 is dedicated to Small Business programs. The scope of this part covers many elements including participation by 8(a) participants, HUBZone, service-disabled veteran-owned, economically disadvantaged women-owned small business (EDWOSB) and women-owned small business (WOSB).

Concerns and policies related to these small business participants are defined and described in detail in FAR Part 19. 19.202-1 focuses on ways small business participation is encouraged in acquisitions and on ensuring small businesses get an equal opportunity to compete for all contracts.

In addition to compliance with the FAR, many government contractors must also maintain compliance with regulations in the DFARS. We’ll outline the differences between the two below.

What is DFARS?

The Defense Federal Acquisition Regulation Supplement (DFARS) is a supplement to the FAR and applies to the Defense Industrial Base (DiB). Government contractors working with the DoD supply chain must adhere to DFARS requirements which are in addition to FAR requirements. Those working with defense agencies can risk losing their contracts if they are not in compliance.

One of the key clauses in the DFARS is related to cybersecurity standards outlined in NIST SP800-171.

NIST SP800-171 is a standardized set of requirements that the government has agreed upon for DoD contracts under DFARS clause 252.204-7012. This guidance establishes the framework that government contractors need to follow, including the newly released Cybersecurity Maturity Model Certification (CMMC), in order to maintain compliance for DoD contracts.

How does FAR differ from DFARS?

While these acronyms look similar, they serve different purposes. Any company with a federal contract must be FAR compliant but those that “store, process, or transmit Controlled Unclassified Information, or CUI” are also required to comply with the DFARS. This often applies to DoD contractors or subcontractors. The FAR is the umbrella regulation that the DFARS lives under.

As a government contractor, you’ll be expected to understand the clauses in both the FAR and DFARS that are relevant to your work. Staying up to date with any changes is important to ensure you stay in compliance and continue to win contracts. Falling out of compliance with either regulation puts your business at risk of having your contracts cancelled.

Navigating the ins and outs of these regulations can be a challenge, especially when there are 53 parts to be familiar with not including those in the DFARS. However, preparing early and getting the right team and systems in place will help you create processes that set you up for success.

A government contracting firm’s business processes plays a pivotal role in meeting FAR and CAS compliance requirements and standards. Successfully managing those processes from beginning to end are innately part of the DNA of the Deltek Costpoint solution.

Designed with FAR and CAS in mind, key functionalities of Deltek Costpoint allow for:

• A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives
• Accumulation of costs under general ledger control
• Proper segregation of direct costs from indirect costs
• Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions
• Identification of costs by contract line item and by units based on a contract’s requirements.

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