[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.201-3]

[Page 575]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES--Table of Contents
 
          Subpart 31.2--Contracts With Commercial Organizations
 
Sec. 31.201-3  Determining reasonableness.

    (a) A cost is reasonable if, in its nature and amount, it does not 
exceed that which would be incurred by a prudent person in the conduct 
of competitive business. Reasonableness of specific costs must be 
examined with particular care in connection with firms or their separate 
divisions that may not be subject to effective competitive restraints. 
No presumption of reasonableness shall be attached to the incurrence of 
costs by a contractor. If an initial review of the facts results in a 
challenge of a specific cost by the contracting officer or the 
contracting officer's representative, the burden of proof shall be upon 
the contractor to establish that such cost is reasonable.
    (b) What is reasonable depends upon a variety of considerations and 
circumstances, including--
    (1) Whether it is the type of cost generally recognized as ordinary 
and necessary for the conduct of the contractor's business or the 
contract performance;
    (2) Generally accepted sound business practices, arm's length 
bargaining, and Federal and State laws and regulations;
    (3) The contractor's responsibilities to the Government, other 
customers, the owners of the business, employees, and the public at 
large; and
    (4) Any significant deviations from the contractor's established 
practices.

[52 FR 19804, May 27, 1987]