Ambiguous Federal Acquisition Regulation Criteria on Defense Contractors' Public Relations Costs

NSIAD-85-20: Published: Oct 29, 1984. Publicly Released: Oct 29, 1984.

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In connection with its study on the regulation of defense contractors' public relations costs, GAO reviewed the final overhead cost settlements at 12 contracting activities.

GAO found that contractors, the Defense Contract Audit Agency (DCAA), and contracting officers often have differing interpretations on the allowability of certain public relations costs, because the Federal Acquisition Regulation (FAR) contains ambiguous criteria for determining allowable costs. GAO noted that a disagreement between a contractor and DCAA can lead to complex and involved overhead negotiations. GAO further observed that DCAA had questioned $4 million in possible public relations costs at the 12 activities reviewed and that contracting officers resolved the questioned costs inconsistently. GAO believes that the clarification of certain FAR would reduce differences and disagreements, administrative burdens, and unproductive audit time.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FAR was amended to comply with the requirements of P.L. 99-145. The revision clarifies that elements of selling costs, which are covered elsewhere in the FAR cost principles, are governed by more specific rules. The amendment introduced a new and important concept by stating that costs that are not made allowable under other sections.

    Recommendation: The Secretary of Defense should direct the Defense Acquisition Regulatory (DAR) Council to coordinate with the Civilian Agency Acquisition Council (CAAC) to clarify the FAR criteria for the cost categories of advertising and selling to reduce the ambiguity surrounding these costs.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: On April 9, 1986, FAR was revised to make unallowable the costs of air shows, exhibits, displays, promotions, models, and giveaways.

    Recommendation: The Secretary of Defense should direct the DAR Council to coordinate with CAAC to specifically address the circumstances under which the cost elements of air shows, exhibits, displays, promotions, models, and giveaways will be considered allowable or unallowable.

    Agency Affected: Department of Defense


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