42.709-1
Scope
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.