This guide explains DFARS Part 231, Contract Cost Principles and Procedures, with practical distinctions, a fictional contractor example, and a preparation checklist.
A cost can be real, recorded, and approved internally without being recoverable under a defense contract. But first determine whether the cost principles apply. Your company status, acquisition terms, and current exceptions matter before anyone labels the expense allowable.
Watch the DFARS Part 231 lesson
DFARS Part 231: Resolve cost applicability first
Read FAR Part 31, DFARS Part 231, applicable authorized deviations, and the actual solicitation or contract together. The DoD index lists Class Deviation 2026-O0032, Revision 1, dated August 4, 2026. An older checklist alone cannot establish the governing rule.
Section 1826 of the FY2026 defense authorization law includes an exemption from FAR Part 31 for products and services provided by nontraditional defense contractors. The law also provides a written-determination route for waiver, modification, or partial application. Check the specific acquisition and authorized determination.
Nontraditional is a defined status, not a synonym for startup, innovative, or new to your customer. The statutory definition looks to current and prior DoD performance subject to full CAS coverage, including the specified one-year lookback. Preserve the facts supporting the status.
An exemption question and a cost-treatment question are different. Resolve applicability first, including any authorized application of requirements. If the principles apply, complete the cost review. Do not use a marketing label as a substitute for the determination.
Where cost principles apply
Where cost principles apply, identify the organization type, contract arrangement, and purpose of the review. Proposal pricing, reimbursable billing, indirect rates, and a termination settlement can involve different uses of the cost principles.
A fixed-price label does not by itself settle whether cost principles matter. FAR Part 31 addresses their use when cost analysis is performed and when particular clauses require a cost determination. Check the pricing action and the actual terms.
When the commercial-organization cost principles govern, the allowability review includes reasonableness, allocability, applicable accounting standards, contract terms, and stated limitations. A general ledger entry proves a recording step; it does not resolve every part of that review.
Explain what was purchased, who benefited, and how the amount was assigned. A cost allocation should follow the applicable rule and consistent practice. Moving an expense to a convenient contract does not supply a missing basis.
Check defense-specific categories
Part 231 adds defense-specific treatment for selected costs, including certain compensation, research and proposal costs, insurance, restructuring, and counterfeit electronic parts. Identify the exact category and governing version. A broad overhead label does not settle those questions.
Research and proposal cost treatment has its own definitions and conditions. Do not reuse a threshold, reporting assumption, or approval statement from an old presentation without checking the applicable text. This overview does not give a universal IR&D reporting deadline.
A business combination and its restructuring costs raise specific review questions. Expected savings and management approval do not, by themselves, make every integration expense recoverable. Identify the applicable conditions and required process before including costs in a Government submission.
When the applicable cost principles require exclusion, identify the unallowable amount and review directly associated costs. Keep the treatment visible through billing, proposals, and indirect-cost processes. An expense can remain a legitimate company expense while being excluded from Government recovery.
A hypothetical example
Consider a fictional aerospace supplier that is preparing a cost-supported price proposal. Its accounting team groups proposal labor, a customer event, an integration bonus, and insurance into overhead. The program manager assumes that a corporate approval makes the full pool acceptable.
Contracts first checks the contractor-status facts, the acquisition framework, and any authorized determination affecting the cost principles. The team documents whether the principles apply to this proposal instead of beginning with an unsupported assumption about the company.
If the cost principles apply, finance and contracts separate the four expense categories. They identify the purpose, allocation, supporting records, and specific limitations for each. They do not treat the entire pool as allowable simply because one item appears routine.
The team excludes amounts established as unallowable and routes uncertain items for qualified review. It retains the supporting decision and any applicable agreement. This example illustrates a preparation process; it does not determine the recoverability of a real contractor cost.
DFARS Part 231 preparation checklist
- Acquisition and date
- Organization and status
- Applicability basis and authorized determination
- Cost description
- Amount and allocation
- Governing limitation
- Supporting evidence and required approval
- Reviewer, conclusion, and unresolved question
Official sources and applicability
DFARS Part 231; DoD RFO class deviations; 10 U.S.C. 3014 and statutory note: FY2026 NDAA section 1826; FAR Part 31 overhaul text; FAR 31.201-2; FAR 31.201-6. Sources reviewed November 5, 2026. Verify current authorized deviations, later changes, and the actual acquisition documents. PGI provides acquisition procedures and guidance; distinguish agency administration from contractor obligations.
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