31.205-15
Fines, penalties, and mischarging costs
Costs for fines, penalties, and mischarging—including related investigative or corrective expenses—are generally unallowable on government contracts unless specifically required by contract terms or written instructions.
Overview
FAR 31.205-15 addresses the allowability of costs related to fines, penalties, and mischarging on government contracts. It establishes that costs resulting from violations of laws or regulations, or from improper charging practices, are generally unallowable for reimbursement under government contracts. The only exception is when such costs are incurred due to compliance with specific contract terms or written instructions from the contracting officer. The regulation also clarifies that costs associated with investigating, measuring, or remedying mischarging—such as reconstructing records—are also unallowable if they stem from improper conduct like falsification or destruction of records.
Key Rules
- Fines and Penalties
- Costs from fines or penalties due to legal or regulatory violations are unallowable, unless specifically required by contract terms or written contracting officer instructions.
- Mischarging Costs
- Costs related to mischarging, including those for investigating or correcting improper charges, are unallowable if caused by falsification, destruction of records, or other improper actions.
Responsibilities
- Contracting Officers: Must ensure unallowable costs are excluded from contract reimbursements and clarify exceptions in writing if applicable.
- Contractors: Must not claim costs for fines, penalties, or mischarging, and must maintain accurate records to avoid improper charges.
- Agencies: Should monitor compliance and review cost submissions for unallowable charges.
Practical Implications
- This rule prevents contractors from passing the financial burden of legal violations or improper cost practices onto the government.
- Contractors must have robust compliance and recordkeeping systems to avoid unallowable costs.
- Common pitfalls include attempting to claim costs related to fines, penalties, or correcting mischarging, which can lead to audit findings or penalties.