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AF1981

Masks - allowable or unallowable? If logo'd?

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In today's COVID-19 environment it is obvious to me that masks are becoming an "office supply" of sorts and would therefore be an allowable business (indirect) cost applied to our cost-reimbursable contracts.  If we subsequently choose to have a corporate logo applied to the reusable (or one-time use masks for that matter) is the cost of the mask itself unallowable or is it just the addition of the logo?  This might be analogous to buying log books or notebooks that are an integral part of the business operations and then choosing in subsequent orders to have the front cover modified to have the company logo.  Clearly the “intent” of the purchase of the log/note books and the face mask are to do routine business activities and the “intent” of putting on the logo is marketing, the latter being defined as unallowable.  The question is whether the entire cost of the mask or notebook is now unallowable because the intent of the logo overrides the legitimate allowable cost otherwise?

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You can avoid the whole problem by using plain masks.

I recommend reading FAR 31.109, Advance Agreements, as the best way to find your answer.

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Thanks.  I agree and the same would apply to notebooks where we put our company logo.  The question however isn't as much about the masks as it is about the principle.  Specifically, if the fundamental cost is for something that is allowable, does adding a logo to it make the total cost unallowable, or just the cost to add the logo?  Nothing in 31.109 has addressed that principle for me.

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First, 31.109 is a bit of joke these days. It's quite difficult to get an advance agreement through all the hoops. It's not impossible, and certain services are more forward-leaning than others, but as a general rule not many people would think obtaining an advance agreement is worth the effort -- particularly on something as potentially controversial as putting logos on facemasks.

Second, unless the contractor can show a bona fide reason for putting logos on masks, the inclination is to think the contractor is doing it for favorable attention. In other words, advertising. Unallowable -- 100%. However, there are bona fide reasons where a logo might make sense. For hypothetical example, suppose there is a group or team in a location comprised of people from different contractors or maybe some government folks mixed in. It might make good sense to identify Contractor #1 from everybody else. If that's the case, then it's reasonable and very likely allowable.

As with 99% of everything having to do with cost allowability, it is the "why" that is determinative. "Why" are logos being put on facemasks? When you answer that question you will know what's allowable and what's not allowable.

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If one thinks about it, being able to identify company employees behind those masks would seem reasonable. 

If the cost of basic masks are reasonable and the masks are reasonably necessary for safety and health purposes, why couldn’t  the cost of  basic mask be the benchmark if the cost for adding the logo can be deducted from the otherwise reasonable and allocable costs for the basic masks? 

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Hello Joel - right, that is the crux of my inquiry.  It seems unreasonable to automatically convert the costs for a legitimately allowable costs for something like the masks (or notebooks in my example) to unallowable simply because an additional amount of costs were incurred to apply logos.  I understand the principle to make the *additional costs* that provide a marketing/advertising value as unallowable but can't see why (or where there is any clear policy/FAR language) the entire costs for the masks (or notebooks) would now be unallowable.

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AF1981,  

There is no clear policy/FAR language that the entire costs for the masks (or notebooks) would be unallowable if the costs include a logo charge.

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3 hours ago, AF1981 said:

It seems unreasonable to automatically convert the costs for a legitimately allowable costs for something like the masks (or notebooks in my example) to unallowable simply because an additional amount of costs were incurred to apply logos.  I understand the principle to make the *additional costs* that provide a marketing/advertising value as unallowable but can't see why (or where there is any clear policy/FAR language) the entire costs for the masks (or notebooks) would now be unallowable.

Of course there's no clear language. See FAR 31.204

Quote

Section 31.205 does not cover every element of cost. Failure to include any item of cost does not imply that it is either allowable or unallowable. The determination of allowability shall be based on the principles and standards in this subpart and the treatment of similar or related selected items. When more than one subsection in 31.205 is relevant to a contractor cost, the cost shall be apportioned among the applicable subsections, and the determination of allowability of each portion shall be based on the guidance contained in the applicable subsection. When a cost, to which more than one subsection in 31.205 is relevant, cannot be apportioned, the determination of allowability shall be based on the guidance contained in the subsection that most specifically deals with, or best captures the essential nature of, the cost at issue.

The argument that the cost of masks is allowable but the additional cost of the logos is unallowable is tantamount to arguing that (a) the cost of paper is allowable but the additional cost of painting the contractor's company logo on a billboard is unallowable, or (b) the cost of water is allowable but alcohol is not allowable, so a beer that is 5.0% ABV is 95% allowable.

You can certainly advance such theories, but in my experience you shouldn't expect to convince an auditor or contracting officer that your theories are sound.

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Thanks here_2_help but I'm not sure either example is really apropos. 

In the case of the masks (or the notebooks) the cost is not only appropriate but allowable because both have very specific value and purpose and are needed in operations.  In your examples, neither the (empty) billboard nor the 95% of the beer is needed in operations or has business value or purpose otherwise.  The costs for them would simply not be incurred were-it-not-for the purpose of either being an advertisement or "to be alcohol" - both of which would normally be unallowable. 

The arguable premise here is that the masks DO have real value and purpose in operations whether with or without the logo and ONLY when you incur costs to put on company logos do they ALSO serve the additional purpose that could be perceived as advertising (and if so, likely unallowable).  I'd more liken it to a landscape company that purchases a truck to haul their gear.  Clearly appropriate, needed, has value and purpose in the business.  BUT, does its cost become unallowable if they put their company logo on the side?

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31 minutes ago, AF1981 said:

Thanks here_2_help but I'm not sure either example is really apropos. 

In the case of the masks (or the notebooks) the cost is not only appropriate but allowable because both have very specific value and purpose and are needed in operations.  In your examples, neither the (empty) billboard nor the 95% of the beer is needed in operations or has business value or purpose otherwise.  The costs for them would simply not be incurred were-it-not-for the purpose of either being an advertisement or "to be alcohol" - both of which would normally be unallowable. 

The arguable premise here is that the masks DO have real value and purpose in operations whether with or without the logo and ONLY when you incur costs to put on company logos do they ALSO serve the additional purpose that could be perceived as advertising (and if so, likely unallowable).  I'd more liken it to a landscape company that purchases a truck to haul their gear.  Clearly appropriate, needed, has value and purpose in the business.  BUT, does its cost become unallowable if they put their company logo on the side?

AF1981, As I posted, you are free to advance whatever theories you wish to support your claimed costs. My main point was that if there were no allowable business purpose associated with the logos then you risk having the entire cost questioned during any audits. Your arguments may work! Good for you if they do.

With respect to your analogy, I'm not sure it's any better than the two I advanced. Buying a truck is a complete action with a discrete cost. Buying a magnetic sign to put on the truck is a complete action with a discrete cost. Two transactions in the accounting system. Easy to tag one as "allowable" and the other as "unallowable." Can you do the same thing with facemasks and logos? I was under the impression that your company was purchasing facemasks with logos already added -- i.e., as a complete unit. Maybe I was wrong? But if there are not two distinct accounting transactions, I think the analogy would be to having the truck painted by an auto painting company and asking that they paint the logo onto the truck as part of the paint job. The paint job, though necessary, became unallowable because the logo was included in the price.

Again, you should do whatever makes sense to you. But you won't find any regulatory support for it.

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AF1981, would the total cost of buying stationery with a contractor's letterhead and logo be an allowable cost or only the amount of the cost that is attributable to buying plain paper?

Are the masks to be used only while in the contractor's facility, only in a government facility, or at any time?

If the masks are to be worn in a government facility while performing a contract, does the contract require contractor personnel to wear distinctive clothing to identify them as contractor personnel?

Have you looked at the definition of advertising in 31.205-1?  I don't think just having a logo on a mask necessarily constitutes advertising or public relations.

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Hello Retredfed - I'm pretty certain company letterhead is considered a necessary and typical business expense and the associated company name and logo would not be considered advertising as intended in the principle regarding allowability. 

As for the masks - the intent would be to have them used by our staff whenever appropriate during company business - whether in our facility or the government's.  As the intent is for them to be used when appropriate during company business we'd provide them just like we would the notebook or the landscaper would the truck for his teams travelling to customer job sites.

The contract(s) the staff support do not require distinctive clothing or uniforms however they do all have to wear badges that do distinguish them as contractors.  No marking on these masks *is required* to distinguish one from the other at all.

Wrt 31.205 - the "but are not limited to" component of the definition of advertising media along with the all "other than those specified" as allowable are unallowable language always leads us to the conclusion that putting our logo on pretty much anything where it doesn't HAVE to go constitutes something unallowable from a cost perspective.  For example, when we chose to put it on optional (and professional) company-provided clothing the cost was always considered unallowable.  In this particular case, the company-provided attire was NOT a normal part of our business and not required nor did it in-and-of-itself provide any distinguishable additional value to our operations.  

All that said - I think the immediate conclusion I'm coming to is that there is NO FAR or other language regarding cost allowability determination (in 31.205-1 or otherwise) that removes the opportunity for subjectivity on the part of an auditor or CO when it comes to the question of whether unallowability of a cost item makes another otherwise allowable cost item unallowable once combined (as in the logo on the truck, notebook, or face mask).  The risk-free approach would be to simply not do it as the answer isn't codified but instead open to individual interpretations and constructed defense.

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If you want to remove the opportunity for subjectivity on the part of an auditor or CO when it comes to the question of whether unallowability of a cost item makes another otherwise allowable cost item unallowable once combined, then pursue an advance agreement.  See FAR 31.109.

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