2-34.10 Unallowable Costs

Costs that are expressly or mutually agreed to be unallowable, including directly associated costs, must be excluded from any contract billing, claim, or proposal. A directly associated cost is a cost generated solely as a result of another cost, which would not have been incurred if the other cost had not been incurred. When an unallowable cost is incurred, its directly associated costs are also unallowable. The following categories of costs are unallowable:

  1. Public relations and advertising costs, except for costs of:
    1. Responding to inquiries concerning company policies and activities;
    2. Essential communication with the public, press, stockholders, creditors, and customers, including communications on matters of public concern;
    3. Participating in community-service activities, such as blood-bank drives, charity drives, and disaster assistance (but not contributions to civil defense funds and projects);
    4. Recruiting personnel needed to work under the contract;
    5. Acquiring scarce items for contract performance; and
    6. Disposing of scrap or surplus materials acquired for contract performance.
  2. Bad debts, including actual or estimated losses arising from uncollectible accounts receivable from customers and other claims, and any costs directly associated with bad debts such as collection and legal costs.
  3. Contributions or donations, including cash, property, and services, except as provided in 1.(c.).
  4. Dividends or payments and distribution of profits.
  5. Entertainment costs, including amusement, diversion, social activities, and costs directly associated with entertainment, such as tickets to shows or sporting events, meals, lodging, rentals, transportation, and gratuities. Entertainment costs include membership in social, dining, or country clubs or other organizations having the same purpose, regardless of whether the cost is reported as taxable income to the employees.
  6. Fines and penalties resulting from violations of Federal, state, local, or foreign laws and regulations, except when incurred as a result of complying with specific terms and conditions of the contract or written instructions from the contracting officer.
  7. Life insurance on the lives of officers, partners, or proprietors, unless the insurance represents additional compensation.
  8. Interest on loans (however represented), bond discounts, costs of financing and refinancing capital, and the costs of preparing and issuing prospectuses and stock rights.
  9. Lobbying cost:
    1. Including:
      1. Attempts to influence the outcome of any Federal, state, or local election, referendum, initiative, or similar procedure through contributions, endorsements, publicity, or similar activities.
      2. Establishing, administering, contributing to, or paying the expenses of a political party, campaign, political action committee, or other organization established for the purpose of influencing the outcomes of elections.
      3. Any attempt to influence the introduction of Federal or state legislation, or the enactment or modification of any pending Federal or state legislation through communication with any member or employee of Congress or a state legislature (including efforts to influence state or local officials to engage in similar lobbying activity), or with any government official or employee in connection with a decision to sign or veto legislation.
      4. Any attempt to influence the introduction of Federal or state legislation, or the enactment or modification of pending Federal or state legislation by preparing, distributing, or using publicity or propaganda, or by urging members of the general public to contribute to, or participate in, any mass demonstration, march, rally, fund-raising drive, lobbying campaign, or letter-writing or telephone campaign.
      5. Legislation-liaison activities, including attendance at legislative sessions or committee hearings, gathering information regarding legislation, and analyzing the effect of legislation, when the activities are in support of, or in knowing preparation for, an effort to engage in unallowable activities.
    2. But not including:
      1. Providing a technical and factual presentation of information on a topic directly related to performing the contract in a hearing testimony, statement, or letter to Congress or a state legislature, or subdivision, member, or staff member of either, in response to a documented request (including a Congressional Record notice requesting testimony or statements for the record at a regularly scheduled hearing) made by the recipient member, legislative body or subdivision, or a cognizant staff member. Costs for transportation, lodging, or meals associated with this exception are not allowed unless incurred for the purpose of offering testimony at a regularly scheduled Congressional hearing in response to a written request made by the chair or ranking minority member of the committee or subcommittee conducting the hearing.
      2. Any lobbying to influence state or Federal legislation to directly reduce contract cost, or to impair the supplier’s obligation to perform the contract.
      3. Any activity specifically authorized by statute to be undertaken with funds from the contract.
  10. Losses on other contracts (including the supplier’s contribution under cost-sharing contracts).
  11. Taxes:
    1. Federal income and excess-profits taxes.
    2. Taxes in connection with financing, refinancing, refunding operations, or reorganizations.
    3. Taxes from which exemptions are available to the supplier directly, or available to the supplier based on a Postal Service exemption, except when the purchase/SCM team determines that the administrative burden of obtaining the exemption outweighs the benefits to the Postal Service. The term “exemption” means freedom from taxation in whole or in part, and includes a tax abatement or reduction resulting from the method of assessment, calculation, or other reason.
    4. Special assessments on land that represent capital improvements.
    5. Taxes (including excise taxes) on real or personal property, or on the value, use, possession, or sale of property, used solely in connection with work on contracts that are not with the Postal Service or the government.
    6. Taxes on accumulated funding deficiencies of, or prohibited transactions involving, employee deferred compensation plans under section 4971 or 4975 of the Internal Revenue Code of 1954, as amended.
    7. Income tax accruals designed to account for the tax effect of differences between taxable income and pretax income as reflected by the supplier’s accounting and financial statements.
  12. Costs incurred in defending against any combination of the actions below when brought by the government against a supplier, its agents, or employees, when the charges involve fraud or similar criminal offenses (including filing of a false certification) on the part of the supplier, its agents, or employees, and result in conviction (including conviction entered on a plea of nolo contendere), judgment against the supplier, its agents, or employees, or a decision to debar or suspend, or are resolved by consent or compromise (when charges of fraud are resolved by consent or compromise, the parties may agree on the extent of allowability of defense costs as a part of the resolution). The actions include:
    1. Criminal or civil investigation, grand jury proceedings, or prosecution;
    2. Civil litigation; or
    3. Administrative proceedings such as suspension or debarment.
  13. Costs incurred against Postal Service claims or appeals or the prosecution of claims or appeals against the Postal Service.