Assessing the penalty
Contractors face mandatory penalties for including expressly unallowable or previously determined unallowable costs in proposals, and contracting officers must issue a final decision demanding payment unless a waiver is granted.
Overview
FAR 42.709-4 outlines the procedures for assessing penalties on contractors who include expressly unallowable costs or previously determined unallowable costs in their proposals. The regulation mandates that, unless a waiver is granted, the cognizant contracting officer must assess penalties as specified in FAR 42.709-2. Penalties apply when costs are expressly unallowable under the FAR or agency supplements, or when costs have been previously determined unallowable for that contractor. Evidence of prior determinations includes DCAA Form 1, unappealed contracting officer decisions, Board of Contract Appeals or court decisions, or agreements under FAR 31.201-6. The contracting officer must issue a final decision demanding payment of the penalty, which is distinct from repayment of the disallowed cost itself, and must clearly state that the determination is a final decision under the contract's Disputes clause.
Key Rules
- Penalty Assessment for Expressly Unallowable Costs
- Penalties must be assessed when a contractor submits costs that are expressly unallowable under the FAR or agency supplements.
- Penalty Assessment for Previously Determined Unallowable Costs
- Penalties must also be assessed when a contractor submits costs previously determined unallowable, as evidenced by specific documentation or decisions.
- Final Decision Requirement
- The contracting officer must issue a final decision demanding payment of the penalty, separate from any repayment of disallowed costs.
Responsibilities
- Contracting Officers: Must assess penalties, gather evidence of prior determinations, and issue final decisions with payment demands.
- Contractors: Must avoid including expressly unallowable or previously determined unallowable costs in proposals and respond to final decisions as required.
- Agencies: Oversee compliance and ensure proper documentation and enforcement of penalties.
Practical Implications
- This section enforces accountability for cost submissions and deters inclusion of unallowable costs.
- Contractors risk financial penalties and disputes if they submit such costs.
- Proper documentation and understanding of cost allowability are critical to avoid penalties.