Scope
FAR 42.709-1 establishes penalties for contractors who include unallowable indirect costs in certain cost submissions on contracts over $800,000, with specific exclusions.
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 under fixed-price incentive contracts. This regulation is rooted in statutory requirements (10 U.S.C. 3743 and 41 U.S.C. 4303) and is designed to enforce cost allowability standards in government contracting. The section applies to contracts exceeding $800,000, with specific exclusions for fixed-price contracts without cost incentives and firm-fixed-price contracts for commercial products or services. The intent is to ensure contractors do not claim costs that are not allowable under the contract terms or applicable regulations, thereby protecting government funds and promoting compliance with cost principles.
Key Rules
- Penalty Assessment Scope
- Penalties apply when unallowable indirect costs are included in final indirect cost rate proposals or final cost statements for certain contracts.
- Applicability Thresholds and Exclusions
- Applies to contracts over $800,000, except for fixed-price contracts without cost incentives and firm-fixed-price contracts for commercial items or services.
Responsibilities
- Contracting Officers: Must identify contracts subject to these rules and enforce penalty provisions when unallowable costs are detected.
- Contractors: Must ensure only allowable indirect costs are included in relevant cost proposals and statements.
- Agencies: Oversee compliance and may initiate penalty assessments for violations.
Practical Implications
- This section exists to deter contractors from claiming unallowable costs, thereby safeguarding government expenditures.
- Contractors must have robust internal controls to prevent inclusion of unallowable costs in submissions.
- Common pitfalls include misunderstanding what constitutes an unallowable cost or failing to apply the rules to all applicable contracts.