[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.205-7]

[Page 619]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
Sec. 31.205-7  Contingencies.

    (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.)

[69 FR 34243, June 18, 2004]