42.709
Penalties for Unallowable Costs
FAR 42.709 enforces financial penalties and interest on contractors who claim expressly unallowable costs in indirect cost rate proposals, emphasizing the importance of accurate cost submissions.
Overview
FAR 42.709 establishes the rules and procedures for assessing penalties on contractors who include unallowable costs in their proposals for indirect cost rates. The regulation outlines when penalties apply, how they are calculated, and the responsibilities of both contracting officers and contractors. It also details the process for computing interest on unallowable costs, circumstances under which penalties may be waived, and the required contract clause to be included in applicable contracts. The intent is to deter contractors from claiming costs that are expressly unallowable or directly associated with unallowable costs, thereby protecting government funds and ensuring compliance with cost principles.
Key Rules
- Scope and Applicability
- Applies to contracts that require submission of indirect cost rate proposals and are subject to cost principles.
- Penalty Assessment
- Penalties are imposed when a contractor claims a cost that is expressly unallowable or directly associated with an unallowable cost.
- Interest Calculation
- Interest is charged on the amount of unallowable costs claimed, calculated from the date of overpayment.
- Waiver Provisions
- Penalties may be waived under certain conditions, such as when the contractor demonstrates reasonable care or the amount is minimal.
- Contract Clause Requirement
- Contracts meeting the criteria must include a clause outlining these penalty provisions.
Responsibilities
- Contracting Officers: Assess penalties, compute interest, determine eligibility for waiver, and ensure inclusion of the contract clause.
- Contractors: Avoid claiming unallowable costs, maintain accurate records, and comply with cost principle requirements.
- Agencies: Oversee enforcement and ensure compliance with penalty provisions.
Practical Implications
- This section exists to discourage the inclusion of unallowable costs in indirect cost rate proposals.
- It impacts contractors by imposing financial penalties and interest for non-compliance.
- Common pitfalls include misunderstanding what constitutes an unallowable cost and failing to maintain adequate documentation.