FAR 31.205-33 Mistakes: When Outside Consultant Fees Get Disallowed
On federal construction projects, prime contractors and specialty trade subcontractors often need outside technical, legal, or financial assistance. Whether hiring an engineering consultant to review shop drawings or retaining an attorney to assist with complex compliance requirements, contractors frequently expect to recover these expenses as allowable costs. However, under FAR 31.205-33, costs for professional and consultant services face strict regulatory hurdles. Without proper documentation and clear contract terms, contracting officers can disallow these expenses entirely during an audit or pricing review.
Mistake 1: Submitting Generic Invoices Lacking Specific Work Products
The single most frequent mistake contractors make when claiming consultant costs is relying on broad, summary billings. Under the evidence standards in FAR 31.205-33(f), fees for services rendered are allowable only when supported by detailed evidence showing both the nature and the scope of the service furnished. A line-item bill stating general hours for consulting or professional advisory work does not satisfy federal requirements.
To avoid cost disallowance, the evidence submitted must include three specific categories of documentation:
- Agreement Details: Full copies of all agreements showing the work requirements, rate of compensation, and the nature and amount of any other billed expenses.
- Detailed Billings: Invoices from the consultant detailing both the exact time expended and the specific nature of the actual services provided.
- Tangible Deliverables: The consultant's actual work products and related records, including trip reports that specify the persons visited and subjects discussed, formal minutes of meetings, and collateral memoranda or technical reports.
When tracking overhead and estimating general conditions, estimators and project managers must ensure that outside consultants understand these documentation rules before any billable work begins.
Mistake 2: Misunderstanding the Strict Rules for Retainer Agreements
Many contractors keep law firms, accountants, or specialized engineering groups on standing retainers. A common error is assuming that paying a recurring monthly fee automatically makes it an allowable cost on federal contracts. FAR 31.205-33(e) establishes that retainer fees must meet four separate evidentiary tests to be considered allowable:
- The services covered by the retainer agreement must be necessary and customary.
- The level of past services rendered must justify the amount of the retainer fee.
- The retainer fee must be reasonable when compared to maintaining an in-house capability, taking into account both total cost and level of expertise.
- The actual services performed under the retainer must be documented using the detailed invoices, agreements, and work products required under paragraph (f).
FAR 31.205-33(e)(2) does note that if no services were rendered during a given period, the retainer fees are not automatically unallowable. However, the contractor must still prove that the overall past service history and ongoing business necessity justify the retainer expense.
Mistake 3: Setting Up Fees Contingent Upon Government Recovery
Another severe trap involves the commercial structure of the consultant agreement itself. According to FAR 31.205-33(b), professional and consultant costs are allowable only when reasonable in relation to the services rendered and when they are not contingent upon recovery of the costs from the Government. If an agreement with an engineer or advisor specifies that their compensation is tied to whether the contracting officer pays the cost or approves a price adjustment, the entire fee becomes unallowable.
Mistake 4: Ignoring the Contracting Officer's Capability and Pattern Tests
Contractors often fail to realize that contracting officers must evaluate several specific business factors when deciding whether an outside service fee is allowable. Under FAR 31.205-33(d), no single factor is completely determinative, but contracting officers are instructed to examine:
- Necessity and In-House Skill: The contractor's own capability in that field and whether the work could have been handled more economically by hiring an employee rather than contracting out.
- Historical Patterns: The contractor's past pattern of acquiring such services and their costs, particularly in the years prior to the award of Government contracts.
- Workload Influence: Whether the proportion of Government work compared to total business influenced the contractor to incur the cost, especially if the service has little connection to the Government contract work and is not of a continuing nature.
- Agreement Adequacy: Whether the underlying contract contains an adequate description of the service, an estimate of time required, a defined rate of compensation, and appropriate termination provisions.
Mistake 5: Billing for Scope Creep or Prohibited Influence
Even if an outside expert possesses exceptional qualifications and charges customary market rates, the resulting cost is unallowable under FAR 31.205-33(c) if the service falls into specific prohibited categories. Work performed that is not consistent with the purpose and scope contracted for or agreed to cannot be allowed. Furthermore, costs are unallowable if the services improperly obtain, distribute, or use data protected by law or regulation, such as proprietary data protected under FAR 52.215-1(e).
Finally, costs are completely unallowable if the services are intended to improperly influence the contents of solicitations, the evaluation of proposals or quotes, or the source selection process, regardless of whether that award is made by the Government, a prime contractor, or a subcontractor. Reviewing your proposals and bid exclusions and clarifications early helps keep professional fees strictly focused on allowable technical and administrative support.
Sources
FAR 31.205-33: Professional and Consultant Service Costs
FAR 31.205-47: Costs Related to Legal and Other Proceedings
Published October 31, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.