Certificate of indirect costs
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.