I recently helped a client resolve an incurred cost dispute that involved "idle capacity" costs under FAR 31.205-17, which governs the allowability of both "idle capacity" and "idle facility" costs incurred by contractors. The regulation states that the costs of “idle capacity” are allowable, given that “[c]osts of idle capacity are costs of doing business and are a factor in the normal fluctuations of usage or overhead rates from period to period.” These costs are allowable provided that the capacity is presently necessary, or was originally reasonable and is not subject to elimination in accordance with sound business, economics, or security practices.
With the COVID-19 pandemic, many contractors have allowed their employees to adopt remote or hybrid work schedules, working from home and therefore absent from the office. As a result, contractor facilities may be underutilized to some degree or another compared to pre-pandemic conditions, and this may cause government auditors to question the allowability of the costs of now partially occupied contractor facilities. There are no cases (yet) that address the applicability of the idle capacity cost regulations to these situations, so I published an article recently in The Procurement Lawyer on "Post-Pandemic Workplaces, Remote Work Practices, and Underutilized Facilities: Regulations and Case Law Regarding the Allowability of “Idle
Capacity” Costs. You can read it here:
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