42.703-2 Certificate of indirect costs
Source: FAR 42.703-2 on acquisition.gov
Contractors must certify their final indirect cost rate proposals or risk unilateral rate determination and potential penalties for unallowable costs.
Overview
FAR 42.703-2 outlines the requirements for contractors to certify their final indirect cost rate proposals before the government will accept them or establish final indirect cost rates. This certification is a legal attestation that all costs included are allowable and accurate, and is a prerequisite for finalizing indirect cost rates on applicable contracts. The regulation also provides for waivers under specific circumstances, such as contracts with foreign governments, state/local governments, educational institutions, or nonprofits subject to OMB Uniform Guidance. If a contractor fails to certify and no waiver applies, the contracting officer may unilaterally set the rates, typically at conservative levels to protect the government. The section also addresses the consequences of false certification and the penalties for including unallowable costs, and mandates the inclusion of the certification clause in relevant contracts, with a Department of Energy exception.
Key Rules
- Certification Requirement
- Contractors must certify their final indirect cost rate proposals before rates are accepted or agreements are made.
- Waiver of Certification
- Agency heads may waive certification in the interest of the United States, with written justification, especially for certain government, educational, or nonprofit entities.
- Unilateral Rate Establishment
- If certification is not provided and no waiver applies, the contracting officer may set rates unilaterally, using available data and excluding unallowable costs.
- False Certification
- Suspected false certifications require legal consultation for appropriate action.
- Penalties for Unallowable Costs
- Statutory penalties apply for submitting unallowable costs in final proposals.
- Contract Clause Requirement
- The certification clause (52.242-4) must be included in all contracts establishing final indirect cost rates, except certain Department of Energy contracts.
Responsibilities
- Contracting Officers: Ensure certification is obtained, process waivers appropriately, set unilateral rates if needed, consult legal counsel for false certifications, and include the required contract clause.
- Contractors: Certify final indirect cost rate proposals, avoid submitting unallowable costs, and understand the consequences of false certification.
- Agencies: Provide oversight, process waivers, and enforce penalties as required.
Practical Implications
- This regulation ensures the integrity and accuracy of indirect cost rates charged to the government, protecting federal funds from unallowable or inflated costs. Contractors must be diligent in certifying their proposals and maintaining accurate records. Failure to comply can result in unilateral rate setting, penalties, or legal action. The inclusion of the certification clause in contracts is a critical compliance step.
(a) General. In accordance with https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-section3747&num=0&edition=prelim" target="_blank">10 U.S.C. 3747 and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section4307&num=0&edition=prelim" target="_blank">41 U.S.C.4307, a proposal shall not be accepted and no agreement shall be made to establish final indirect cost rates unless the costs have been certified by the contractor.
(b) Waiver of certification.
(1) The agency head, or designee, may waive the certification requirement when-
(i) It is determined to be in the interest of the United States; and
(ii) The reasons for the determination are put in writing and made available to the public.
(2) A waiver may be appropriate for a contract with-
(i) A foreign government or international organization, such as a subsidiary body of the North Atlantic Treaty Organization;
(ii) A State or local government subject to the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendices V and VII;
(iii) An educational institution (defined as an institution of higher education in the OMB Uniform Guidance at 2 CFR part 200, subpart A, and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title20-section1001&num=0&edition=prelim" target="_blank">20 U.S.C. 1001) subject to the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix III; and
(iv) A nonprofit organization (as defined in the OMB Uniform Guidance at 2 CFR part 200) subject to the OMB Uniform Guidance at 2 CFR part 200, subpart E and appendix IV.
(c) Failure to certify.
(1) If the contractor has not certified its proposal for final indirect cost rates and a waiver is not appropriate, the contracting officer may unilaterally establish the rates.
(2) Rates established unilaterally should be-
(i) Based on audited historical data or other available data as long as unallowable costs are excluded; and
(ii) Set low enough to ensure that unallowable costs will not be reimbursed.
(d) False certification. The contracting officer should consult with legal counsel to determine appropriate action when a contractor’s certificate of final indirect costs is thought to be false.
(e) Penalties for unallowable costs. https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-section3743&num=0&edition=prelim" target="_blank">10 U.S.C. 3743 and http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section4303&num=0&edition=prelim" target="_blank">41 U.S.C.4303 prescribe penalties for submission of unallowable costs in final indirect cost rate proposals (see 42.709 for penalties and contracting officer responsibilities).
(f) Contract clause.
(1) Except as provided in paragraph (f)(2) of this subsection, the clause at 52.242-4, Certification of Final Indirect Costs, shall be incorporated into all solicitations and contracts which provide for establishment of final indirect cost rates.
(2) The Department of Energy may provide an alternate clause in its agency supplement for its Management and Operating contracts.