FAR and DFARS › FAR Part 31: Contract Cost Principles and Procedures › Subpart 31.2
FAR 31.205-7 Contingencies.
The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.
In plain English
This section defines a contingency as a possible future event or condition whose outcome cannot be determined now. It explains that contingency costs are generally unallowable for historical costing, but may be recognized in limited cases like terminations, and it sets rules for handling contingencies in estimates of future costs. Contractors should know that foreseeable contingencies must be included in future cost estimates, while those that cannot be measured precisely must be excluded and disclosed separately.
Applies to: Contractors' cost estimates and historical costing under this subpart
What it requires
- Include contingencies arising from presently known and existing conditions, whose effects are foreseeable within reasonable limits of accuracy, in estimates of future costs to provide the best estimate of performance cost.
- Exclude contingencies whose effects cannot be measured precisely enough to provide equitable results to the contractor and the Government from cost estimates under the several items of cost.
- Disclose separately contingencies that are excluded, including the basis upon which the contingency is computed, to facilitate negotiation of appropriate contractual coverage.
Key terms: Contingency · Historical costing · Estimates of future costs · Terminations · Pending litigation
Written by AI from this section's text. A guide, not legal advice: the text below rules.
The text
(a) Contingency, as used in this subpart, means a possible future event or condition arising from presently known or unknown causes, the outcome of which is indeterminable at the present time.
(b) Costs for contingencies are generally unallowable for historical costing purposes because such costing deals with costs incurred and recorded on the contractor's books. However, in some cases, as for example, terminations, a contingency factor may be recognized when it is applicable to a past period to give recognition to minor unsettled factors in the interest of expediting settlement.
(c) In connection with estimates of future costs, contingencies fall into two categories:
(1) Those that may arise from presently known and existing conditions, the effects of which are foreseeable within reasonable limits of accuracy; e.g., anticipated costs of rejects and defective work. Contingencies of this category are to be included in the estimates of future costs so as to provide the best estimate of performance cost.
(2) Those that may arise from presently known or unknown conditions, the effect of which cannot be measured so precisely as to provide equitable results to the contractor and to the Government; e.g., results of pending litigation. Contingencies of this category are to be excluded from cost estimates under the several items of cost, but should be disclosed separately (including the basis upon which the contingency is computed) to facilitate the negotiation of appropriate contractual coverage. (See, for example, 31.205-6(g) and 31.205-19.)
← 31.205-6 Compensation for personal services. · 31.205-8 Contributions or donations. →
Rule changes for FAR Part 31
- Federal Acquisition Regulation; Technical Amendments ↗ · final rule 2024-04-22 · effective 2024-05-22
Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.