42.709-1 Scope
Source: FAR 42.709-1 on acquisition.gov
FAR 42.709-1 establishes that penalties apply to contractors who include unallowable indirect costs in final cost submissions for contracts over $1 million, with specific exceptions.
Overview
FAR 42.709-1 defines the scope for assessing penalties on contractors who include unallowable indirect costs in their final indirect cost rate proposals or in the final statement of costs for fixed-price incentive contracts. This regulation is grounded in statutory requirements (10 U.S.C. 3743 and 41 U.S.C. 4303) and aims to ensure that only allowable costs are claimed and reimbursed by the government. The section applies to contracts exceeding $1 million, with specific exceptions for fixed-price contracts without cost incentives and firm-fixed-price contracts for commercial products or services.
Key Rules
- Assessment of Penalties
- Penalties are assessed if a contractor includes unallowable indirect costs in final cost submissions.
- Applicability
- Applies to contracts over $1 million, except for certain fixed-price and commercial item contracts.
Responsibilities
- Contracting Officers: Must enforce penalties for unallowable costs and ensure compliance with cost principles.
- Contractors: Must exclude unallowable indirect costs from final cost proposals and statements.
- Agencies: Oversee compliance and ensure proper application of penalties.
Practical Implications
- This section exists to deter contractors from claiming unallowable costs, protecting government funds.
- Contractors must carefully review cost submissions to avoid penalties.
- Common pitfalls include misunderstanding what constitutes an unallowable cost or failing to apply the correct contract thresholds and exceptions.
(a) This section implements 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. It covers the assessment of penalties against contractors which include unallowable indirect costs in-
(1) Final indirect cost rate proposals; or
(2) The final statement of costs incurred or estimated to be incurred under a fixed-price incentive contract.
(b) This section applies to all contracts in excess of $1 million, except fixed-price contracts without cost incentives or any firm-fixed-price contracts for the purchase of commercial products or commercial services.