Sometimes the government’s procurement regulations stir up consternation not because of what they say; rather, because of what they don’t say. Certain realities of the information age weren’t contemplated by industrial-era rule-makers. One example is the now-ubiquitous website. So, are website costs allowable? We think yes.
This question arises periodically when a government audit questions these costs, or a client asks us how to classify them correctly. We sense an inertia toward classifying them as unallowable advertising and promotion. But, this conclusion doesn’t sit well with us. Unlike an advertisement or a promotion, both of which actively project a company’s products or image into the marketplace, a website sits there until someone comes along and visits.
In our view, a website represents an essential element of a company’s business infrastructure. The Oxford Dictionary defines website as “a location connected to the internet that maintains one or more pages on the World Wide Web.” Thus, having a website is akin to having a facility – both are locations people can go to interact with the company and its offerings. A website is, essentially, a digital office or store presence that anyone can enter at any time, from anywhere. It has become a normal cost of doing business in today’s economy – for business and government.
A website is a thing (a noun). Once built, it quietly exists as a unique URL address on the information superhighway. In this light, the cost of a website is no more unallowable than the cost of a brick-and-mortar office along a local highway. It doesn’t resemble advertising or promotion. The terms “to advertise” or “to promote” are actions (verbs). These actions indeed may be necessary to attract people to visit a company’s website – or building. So, it is these activities, not the website itself, that would be subject to the allowability criteria of FAR 31.205-1.
Advertising and promotional activities represent a company’s outreach to the general public. They can be targeted or broadly cast, and are designed to create favorable attention or entice potential customers to engage with the company. Since direct engagement between a seller and potential buyer is an allowable direct selling activity, a person entering a company’s website -- whether out of curiosity or enticement – is, logically, taking the first step into the direct selling process. Therefore, if a company’s website hosts content designed to induce particular customers to purchase particular products or services, then this content, in our view, is an allowable direct selling cost. It’s disseminated only to those persons who enter the website to obtain it.
In this context, we encourage contractors to consider the terms of FAR 31.205-43, Trade, business, technical, and professional activity costs. This cost principle is similar to direct selling insofar as it entails interaction with potential customers, which is very different from advertising and promotion activities contemplated by FAR 31.205-1. Thus, building, maintaining, or enhancing a website should be allowable if the “principle purpose is the dissemination of trade, business, technical or professional information, or the stimulation of production or improved productivity.” Provided, of course, the cost is reasonable.
Finally, we can’t overlook the ubiquity of the government’s own websites, which serve substantially the same principle purpose as contractors’ websites – to disseminate information, consistent with the organization’s purpose, to anyone seeking it. Plus, the government needs contractors’ websites to support market research (FAR Part 10). Let’s not interpret the cost principles in ways that create hypocrisy. And, while our interpretations here necessarily can’t be perfect, they do make sense.