Advertising and Public Relations Costs

The investment in advertising and public relations costs is one many business owners are willing to make. These costs often provide a return on investment, ultimately helping to grow your business. As a government contractor though, these costs can cause quite the headache. The classification of Advertising and public relations costs can be tricky for government contractors. Knowing the distinction between allowable and unallowable costs can help you remain compliant, while reaping many benefits.

Advertising is ‘the use of media to promote the sale of products or services.’ Examples of advertising media are magazines, newspapers, conventions, and direct mail. Public relations are ‘all functions and activities dedicated to maintaining, protecting, and enhancing the company image or maintaining or promoting favorable relations with the public.’ Public relations include activities that relate to advertising and customer relations. Advertising and public relations costs include:

  • Costs of media time and space
  • Purchase of services outside organizations perform
  • Applicable portion of salaries, travel and fringe benefits of employees that engage in the functions and activities that FAR 31.205-1 identifies.

Allowability of Advertising and Public Relations Costs

When determining the allowability of advertising and public relations costs a basic rule of thumb exists. If these costs relate to benefiting the government, then they are most likely allowable. If not, they are unallowable. Government contractors often take a conservative approach to these costs and classify them as unallowable. However, in doing this they take the chance of not recouping the costs from the government.

The Federal Acquisition Regulation (FAR) sets specific guidelines to determine the allowability of these costs. Advertising costs are allowable only if FAR 31.205-1(d) indicates they are. Allowable advertising costs include:

  • Costs that arise from requirements of government contracts
  • Costs to promote sales of products normally sold to the U.S. government
  • Costs that are allowable in accordance with FAR 31.205-34

The guidelines for allowable public relations costs include that they must be a requirement for contracts. Also, there are other guidelines for these costs to be allowable that FAR 31.205-1(e) addresses. Examples of allowable public relations costs are:

  • Responding to inquiries about a company’s policies
  • Communicating with the public
  • Costs of participation in community service activities such as blood bank drives and disaster assistance.

Unallowable Advertising and Public Relations Costs

These costs can, however, also be unallowable. FAR 31.205-1(f) provides guidance for the determination of unallowable costs. If a cost does not meet the requirements above, then it is unallowable. Some common examples of these unallowable costs are:

  • Events that do not focus on the promotion of sales to the government
  • Costs of corporate celebrations
  • Cost of promotional material

Understanding the aspects of advertising and public relation costs is imperative as a government contractor. These costs can be tricky for government contractors. The misclassification of them can negatively impact your business. Having a team of experts to provide you with guidance can help ‘tackle’ this challenging subject.


Originally written by Jamie M. Shryock, CPA

Updated and additional content provided by Elizabeth Partlow