42.703-1 Policy
Source: FAR 42.703-1 on acquisition.gov
A single agency sets binding final indirect cost rates for each business unit, which must be used for payments and closeout across all federal contracts unless otherwise specified.
Overview
FAR 42.703-1 establishes the policy for determining and applying indirect cost rates in government contracts. It assigns a single agency the responsibility for establishing final indirect cost rates for each business unit, making these rates binding across all agencies unless a statute states otherwise. The regulation discourages duplicative audits by allowing agencies to rely on audits conducted by other federal entities if their objectives are met. Billing and final indirect cost rates are required for reimbursing indirect costs under cost-reimbursement contracts and for determining progress payments under fixed-price contracts. For contract closeout and final pricing, final indirect cost rates must be used unless the quick-closeout procedure is applied. These requirements ensure consistency and compliance in the treatment of indirect costs across federal contracts.
Key Rules
- Single Agency Responsibility
- One agency is responsible for setting final indirect cost rates for each business unit, and these rates are binding government-wide unless prohibited by statute.
- Audit Acceptance
- Agencies should not duplicate audits if another federal audit meets their needs.
- Use of Billing and Final Indirect Cost Rates
- Billing rates are used for interim payments; final rates are used for contract closeout and final pricing.
- Application to Contract Types
- Final indirect cost rates are required for cost-reimbursement contracts and for final pricing of certain fixed-price contracts, unless quick-closeout procedures are used.
Responsibilities
- Contracting Officers: Must ensure the correct agency sets the rates, avoid duplicative audits, and apply the correct rates for payments and closeout.
- Contractors: Must comply with established indirect cost rates and provide necessary documentation for audits and rate determinations.
- Agencies: Must coordinate to avoid redundant audits and enforce the use of established rates.
Practical Implications
- Ensures uniformity and prevents disputes over indirect cost rates across agencies.
- Reduces administrative burden by preventing duplicative audits.
- Contractors must be diligent in tracking and applying the correct indirect cost rates, especially during closeout and final pricing negotiations.
(a) A single agency (see 42.705-1) shall be responsible for establishing final indirect cost rates for each business unit. These rates shall be binding on all agencies and their contracting offices, unless otherwise specifically prohibited by statute. An agency shall not perform an audit of indirect cost rates when the contracting officer determines that the objectives of the audit can reasonably be met by accepting the results of an audit that was conducted by any other department or agency of the Federal Government (https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-section3841&num=0&edition=prelim" target="_blank">10 U.S.C. 3841(e) and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section4706(e)&num=0&edition=prelim" target="_blank">41 U.S.C. 4706(e)).
(b) Billing rates and final indirect cost rates shall be used in reimbursing indirect costs under cost-reimbursement contracts and in determining progress payments under fixed-price contracts.
(c) To ensure compliance with https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-section3743&num=0&edition=prelim" target="_blank">10 U.S.C. 3743(a) and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section4303(a)&num=0&edition=prelim" target="_blank">41 U.S.C. 4303(a)-
(1) Final indirect cost rates shall be used for contract closeout for a business unit, unless the quick-closeout procedure in 42.708 is used. These final rates shall be binding for all cost-reimbursement contracts at the business unit, subject to any specific limitation in a contract or advance agreement; and
(2) Established final indirect cost rates shall be used in negotiating the final price of fixed-price incentive and fixed-price redeterminable contracts and in other situations requiring that indirect costs be settled before contract prices are established, unless the quick-closeout procedure in 42.708 is used.