Unallowable costs are the costs incurred by contractors that do not meet the five standards of FAR 31. Allowable costs are the costs incurred by contractors that do meet the five standards of FAR 31.
Just because a cost is incurred, does not mean it can be charged to a government contract. Unallowable costs are the costs incurred by contractors that do not meet the contract terms of FAR 31. As such, they are excluded from any proposals, claim or billing related to the government contract. Unallowable costs do not meet the five standards in FAR 31: reasonable, allocable, CAS, contract terms, FAR subpart limitations. Some common examples of an unallowable costs could be entertainment, alcohol or company parties.
Allowable costs are the costs incurred by contractors that do meet contract terms of FAR 31. These costs meet the five standards in FAR 31: reasonable, allocable, CAS, contract terms, FAR subpart limitations, and therefore can be charged to a government contract. Some examples of common allowable costs would be building materials or office supplies.
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