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31.205-13 Employee morale, health, welfare, food service, and dormitory costs and credits.

31.205-13 Employee morale, health, welfare, food service, and dormitory costs and credits.

      (a) Aggregate costs incurred on activities designed to improve working conditions, employer-employee relations, employee morale, and employee performance (less income generated by these activities) are allowable, subject to the limitations contained in this subsection. Some examples of allowable activities are-

           (1) House publications;

           (2) Health clinics;

           (3) Wellness/fitness centers;

           (4) Employee counseling services; and

           (5) Food and dormitory services for the contractor’s employees at or near the contractor’s facilities. These services include-

                (i) Operating or furnishing facilities for cafeterias, dining rooms, canteens, lunch wagons, vending machines, living accommodations; and

                (ii) Similar types of services.

      (b) Costs of gifts are unallowable. (Gifts do not include awards for performance made pursuant to 31.205-6(f) or awards made in recognition of employee achievements pursuant to an established contractor plan or policy.)

      (c) Costs of recreation are unallowable, except for the costs of employees’ participation in company sponsored sports teams or employee organizations designed to improve company loyalty, team work, or physical fitness.

      (d)

(1) The allowability of food and dormitory losses are determined by the following factors:

                (i) Losses from operating food and dormitory services are allowable only if the contractor’s objective is to operate such services on a break-even basis.

                (ii) Losses sustained because food services or lodging accommodations are furnished without charge or at prices or rates which obviously would not be conducive to the accomplishment of the objective in paragraph (d)(1)(i) of this subsection are not allowable, except as described in paragraph (d)(1)(iii) of this subsection.

                (iii) A loss may be allowed to the extent that the contractor can demonstrate that unusual circumstances exist such that even with efficient management, operating the services on a break-even basis would require charging inordinately high prices, or prices or rates higher than those charged by commercial establishments offering the same services in the same geographical areas. The following are examples of unusual circumstances:

                     (A) The contractor must provide food or dormitory services at remote locations where adequate commercial facilities are not reasonably available.

                     (B) The contractor’s charged (but unproductive) labor costs would be excessive if the services were not available.

                     (C) If cessation or reduction of food or dormitory operations will not otherwise yield net cost savings.

           (2) Costs of food and dormitory services shall include an allocable share of indirect expenses pertaining to these activities.

      (e) When the contractor has an arrangement authorizing an employee association to provide or operate a service, such as vending machines in the contractor’s plant, and retain the profits, such profits shall be treated in the same manner as if the contractor were providing the service (but see paragraph (f) of this subsection).

      (f) Contributions by the contractor to an employee organization, including funds from vending machine receipts or similar sources, are allowable only to the extent that the contractor demonstrates that an equivalent amount of the costs incurred by the employee organization would be allowable if directly incurred by the contractor..