Subpart 42.8
Disallowance of Costs
FAR Subpart 42.8 ensures that only allowable costs are reimbursed by establishing clear procedures for notifying and disallowing unallowable costs in government contracts.
Overview
FAR Subpart 42.8, "Disallowance of Costs," establishes the procedures and requirements for government agencies to identify, notify, and formally disallow costs that are determined to be unallowable under a contract. This subpart outlines the process for issuing a notice of intent to disallow costs, the inclusion of a contract clause addressing cost disallowance, and the steps for disallowing costs after they have been incurred. The regulation ensures that both contracting officers and contractors understand their rights and obligations regarding cost allowability, dispute resolution, and documentation.
Key Rules
- Notice of Intent to Disallow Costs (42.801)
- Contracting officers must provide written notice to contractors when they intend to disallow specific costs, stating the reasons and allowing the contractor to respond.
- Contract Clause Requirement (42.802)
- Contracts must include a clause that addresses the government's right to disallow costs and the procedures for doing so.
- Disallowing Costs After Incurrence (42.803)
- Procedures are provided for disallowing costs after they have been incurred, including documentation and communication requirements.
Responsibilities
- Contracting Officers: Must issue timely and detailed notices of intent to disallow costs, ensure contract clauses are included, and follow proper procedures for disallowance.
- Contractors: Must respond to notices, provide supporting documentation, and comply with contract terms regarding cost allowability.
- Agencies: Oversee compliance, maintain records, and support dispute resolution processes.
Practical Implications
- This subpart exists to protect government funds by ensuring only allowable costs are paid.
- It impacts daily contract administration, especially for cost-reimbursement contracts.
- Common issues include disputes over cost allowability, inadequate documentation, and failure to follow notification procedures.