When does FAR 31.202 apply?

Does the contractor have multiple government contracts with different cost structures? If yes, the consistency rule of 31.202 governs how each cost class flows. A travel cost direct on Contract A but indirect on Contract B for the same purpose is a finding waiting to happen. Is the contractor proposing to treat a normally-direct cost as indirect for practicality? The treatment is permitted but must be documented in the disclosure statement (CAS-covered) or in cost-accounting policies (non-CAS). Inconsistent application is the failure mode. Is there a written cost-accounting policy that defines direct vs. indirect classifications? A documented policy is the practical defense in audit. Without one, every direct/indirect classification becomes a fact question and the contractor bears the burden.

What are the most common contractor pitfalls under FAR 31.202?

Charging similar costs differently across contracts: This is the canonical 31.202 / CAS 402 violation. A specific tooling charge that is direct on one job and indirect on another, both performed under similar circumstances, is unallowable as charged on the inconsistent contract. Reclassifying costs from indirect to direct mid-year: Reclassification can be done, but it must reflect a genuine change in cost structure or business circumstances and must be applied prospectively and consistently. Mid-year reclassifications timed to favorable rate outcomes attract scrutiny. Using "direct charge of small consumables" without a documented policy: Small consumables can be either direct or indirect, but the contractor must pick one and stick with it. Ad hoc decisions on whether a particular consumable is direct or indirect produce inconsistency findings. Treating IR&D or B&P labor as direct: IR&D and B&P labor is by definition not specifically required by an executing contract, so it is indirect under 31.205-18. Charging IR&D or B&P hours direct to a contract collapses the indirect cost pool and exposes the contractor to questioned costs.

What audit-flag patterns are associated with FAR 31.202?

Auditors and contracting officers commonly flag: The same cost class appearing as direct on some contracts and indirect on others without a documented basis; Mid-year reclassifications without contemporaneous board or finance memos explaining the change; Direct labor categories that overlap with indirect labor categories in the timekeeping system; Travel charged direct on contracts where similar travel is in the overhead pool; No written cost-accounting policy defining direct vs. indirect classifications.

FAR

FAR 31.202 — Direct costs

Defines a direct cost as any cost that can be identified specifically with a final cost objective, and prohibits charging the same type of cost as both direct and indirect on like circumstances.

Citation: 48 C.F.R. § 31.202 · Live text on acquisition.gov · eCFR

What this clause does

FAR 31.202 defines the direct-cost half of the direct/indirect division that FAR 31.203 completes. A direct cost is any cost that can be identified specifically with a particular final cost objective (a contract, project, or other unit of work) without resort to allocation. Typical direct costs are direct labor on a specific contract, materials consumed on that contract, and travel undertaken for that contract.

The section's critical operational rule is the consistency requirement: no final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose in like circumstances have been included in any indirect cost pool to be allocated to that or any other final cost objective. In plain terms, you cannot charge a class of cost as direct to one contract while charging the same class as indirect on another. This is a CAS 402 expression, and it is the most common 31.202 audit finding.

Minor direct costs that would otherwise be charged direct may be treated as indirect for reasons of practicality, provided the treatment is consistent and produces substantially the same result. The classic example is small consumables on a manufacturing contract that are pooled into overhead because individual tracking is cost-prohibitive. The treatment must be documented and consistent.

Does this clause apply to my contract?

Three tests resolve applicability. Read each in order; the first "no" usually means the clause does not flow.

1.Does the contractor have multiple government contracts with different cost structures?
If yes, the consistency rule of 31.202 governs how each cost class flows. A travel cost direct on Contract A but indirect on Contract B for the same purpose is a finding waiting to happen.
2.Is the contractor proposing to treat a normally-direct cost as indirect for practicality?
The treatment is permitted but must be documented in the disclosure statement (CAS-covered) or in cost-accounting policies (non-CAS). Inconsistent application is the failure mode.
3.Is there a written cost-accounting policy that defines direct vs. indirect classifications?
A documented policy is the practical defense in audit. Without one, every direct/indirect classification becomes a fact question and the contractor bears the burden.

Common contractor pitfalls

Patterns that produce questioned costs, back-wage liability, or False Claims Act exposure under this clause.

Charging similar costs differently across contracts
This is the canonical 31.202 / CAS 402 violation. A specific tooling charge that is direct on one job and indirect on another, both performed under similar circumstances, is unallowable as charged on the inconsistent contract.
Reclassifying costs from indirect to direct mid-year
Reclassification can be done, but it must reflect a genuine change in cost structure or business circumstances and must be applied prospectively and consistently. Mid-year reclassifications timed to favorable rate outcomes attract scrutiny.
Using "direct charge of small consumables" without a documented policy
Small consumables can be either direct or indirect, but the contractor must pick one and stick with it. Ad hoc decisions on whether a particular consumable is direct or indirect produce inconsistency findings.
Treating IR&D or B&P labor as direct
IR&D and B&P labor is by definition not specifically required by an executing contract, so it is indirect under 31.205-18. Charging IR&D or B&P hours direct to a contract collapses the indirect cost pool and exposes the contractor to questioned costs.

Audit-flag patterns

Specific signals that contracting officers, DCAA, and agency IGs use to surface noncompliance.

The same cost class appearing as direct on some contracts and indirect on others without a documented basis
Mid-year reclassifications without contemporaneous board or finance memos explaining the change
Direct labor categories that overlap with indirect labor categories in the timekeeping system
Travel charged direct on contracts where similar travel is in the overhead pool
No written cost-accounting policy defining direct vs. indirect classifications

How FieldLedger helps

FieldLedger's Indirect Rate Engine enforces consistent direct/indirect treatment at the chart-of-accounts level. Cost classes are tagged once and the tagging carries through every contract, so 31.202 consistency is structural rather than a manual review step.

DCAA compliance →Indirect Rate Engine →DCAA readiness check →

Related clauses

Clauses that flow alongside or interact with FAR 31.202.

Frequently asked

What does FAR 31.202 require?: Defines a direct cost as any cost that can be identified specifically with a final cost objective, and prohibits charging the same type of cost as both direct and indirect on like circumstances.
When does FAR 31.202 apply?: Does the contractor have multiple government contracts with different cost structures? If yes, the consistency rule of 31.202 governs how each cost class flows. A travel cost direct on Contract A but indirect on Contract B for the same purpose is a finding waiting to happen. Is the contractor proposing to treat a normally-direct cost as indirect for practicality? The treatment is permitted but must be documented in the disclosure statement (CAS-covered) or in cost-accounting policies (non-CAS). Inconsistent application is the failure mode. Is there a written cost-accounting policy that defines direct vs. indirect classifications? A documented policy is the practical defense in audit. Without one, every direct/indirect classification becomes a fact question and the contractor bears the burden.
What are the most common contractor pitfalls under FAR 31.202?: Charging similar costs differently across contracts: This is the canonical 31.202 / CAS 402 violation. A specific tooling charge that is direct on one job and indirect on another, both performed under similar circumstances, is unallowable as charged on the inconsistent contract. Reclassifying costs from indirect to direct mid-year: Reclassification can be done, but it must reflect a genuine change in cost structure or business circumstances and must be applied prospectively and consistently. Mid-year reclassifications timed to favorable rate outcomes attract scrutiny. Using "direct charge of small consumables" without a documented policy: Small consumables can be either direct or indirect, but the contractor must pick one and stick with it. Ad hoc decisions on whether a particular consumable is direct or indirect produce inconsistency findings. Treating IR&D or B&P labor as direct: IR&D and B&P labor is by definition not specifically required by an executing contract, so it is indirect under 31.205-18. Charging IR&D or B&P hours direct to a contract collapses the indirect cost pool and exposes the contractor to questioned costs.
What audit-flag patterns are associated with FAR 31.202?: Auditors and contracting officers commonly flag: The same cost class appearing as direct on some contracts and indirect on others without a documented basis; Mid-year reclassifications without contemporaneous board or finance memos explaining the change; Direct labor categories that overlap with indirect labor categories in the timekeeping system; Travel charged direct on contracts where similar travel is in the overhead pool; No written cost-accounting policy defining direct vs. indirect classifications.
How does FieldLedger help with FAR 31.202?: FieldLedger's Indirect Rate Engine enforces consistent direct/indirect treatment at the chart-of-accounts level. Cost classes are tagged once and the tagging carries through every contract, so 31.202 consistency is structural rather than a manual review step.

Sources

FAR clause text — acquisition.gov/far/31.202
Live regulatory text — eCFR (Title 48)
DCAA Contract Audit Manual — dcaa.mil/Guidance/CAM
Plain-English methodology — FieldLedger methodology

Snapshot date: 2026-05-08. Clause text is binding only as of the version incorporated into your specific contract — check acquisition.gov for the live regulatory text.