42.709-2
General
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.