42.709-2 General
Source: FAR 42.709-2 on acquisition.gov
Including expressly unallowable indirect costs in proposals can result in significant financial penalties, including double penalties if the contractor was previously notified of the unallowability.
Overview
FAR 42.709-2 outlines the penalties imposed on contractors who include expressly unallowable indirect costs in their proposals for contracts subject to this section. The regulation specifies two levels of penalties: (1) for costs that are expressly unallowable under FAR cost principles or agency supplements, the penalty equals the disallowed cost amount plus interest on any paid portion; (2) if the contractor had previously been informed that the cost was unallowable, the penalty is doubled. These penalties are in addition to any other legal or administrative sanctions. Importantly, penalties can be assessed even if the unallowable costs have not yet been paid to the contractor.
(a) The following penalties apply to contracts covered by this section:
(1) If the indirect cost is expressly unallowable under a cost principle in the FAR, or an executive agency supplement to the FAR, that defines the allowability of specific selected costs, the penalty is equal to-
(i) The amount of the disallowed costs allocated to contracts that are subject to this section for which an indirect cost proposal has been submitted; plus
(ii) Interest on the paid portion, if any, of the disallowance.
(2) If the indirect cost was determined to be unallowable for that contractor before proposal submission, the penalty is two times the amount in paragraph (a)(1)(i) of this section.
(b) These penalties are in addition to other administrative, civil, and criminal penalties provided by law.
(c) It is not necessary for unallowable costs to have been paid to the contractor in order to assess a penalty.