42.801 Notice of intent to disallow costs
Source: FAR 42.801 on acquisition.gov
FAR 42.801 requires contracting officers to formally notify contractors of unallowable costs and provides a structured process for timely dispute resolution and communication.
Overview
FAR 42.801 outlines the procedures for issuing a Notice of Intent to Disallow Costs during contract performance. This section empowers the cognizant contracting officer to formally notify a contractor in writing when certain incurred or planned costs are considered unallowable under contract terms. The regulation emphasizes early notification, encourages resolution through discussion before formal notice, and establishes a process for contractor response and timely decision-making. The notice must include specific information such as contract references, cost details, reasons for disallowance, and response deadlines. Coordination is required when indirect costs are involved, and all relevant contracting officers must be informed. The process is designed to ensure transparency, timely communication, and fair resolution of cost allowability disputes.
Key Rules
- Issuance of Notice
- Contracting officers may issue a written notice of intent to disallow costs but must first attempt to resolve issues through discussion.
- Content of Notice
- The notice must include contract references, contractor name, affected contracts, detailed cost descriptions, reasons, impact on rates, effective dates, response deadlines, recipients, and acknowledgment request.
- Contractor Response
- Contractors may submit a written response; the contracting officer must respond within 60 days by withdrawing the notice or issuing a written decision.
- Coordination for Indirect Costs
- Notices involving indirect costs require coordination with the officer or auditor responsible for final indirect cost settlement.
- Distribution
- Copies of the notice must be sent to all relevant contracting officers within the contractor’s organization.
Responsibilities
- Contracting Officers: Attempt resolution before issuing notice, ensure notice contains all required elements, coordinate on indirect costs, respond to contractor within 60 days, and distribute copies appropriately.
- Contractors: Review notice, respond in writing if in disagreement, and acknowledge receipt.
- Agencies: Oversee compliance with notice procedures and ensure proper coordination for indirect cost issues.
Practical Implications
- This section ensures contractors are promptly informed of potential cost disallowances, allowing for timely dispute resolution and adjustment of billing practices. It helps prevent surprises at contract closeout and supports transparency. Common pitfalls include incomplete notices, failure to coordinate on indirect costs, and missed response deadlines.
(a) At any time during the performance of a contract of a type referred to in 42.802, the cognizant contracting officer responsible for administering the contract may issue the contractor a written notice of intent to disallow specified costs incurred or planned for incurrence. However, before issuing the notice, the contracting officer responsible for administering the contract shall make every reasonable effort to reach a satisfactory settlement through discussions with the contractor.
(b) A notice of intent to disallow such costs usually results from monitoring contractor costs. The purpose of the notice is to notify the contractor as early as practicable during contract performance that the cost is considered unallowable under the contract terms and to provide for timely resolution of any resulting disagreement. In the event of disagreement, the contractor may submit to the contracting officer a written response. Any such response shall be answered by withdrawal of the notice or by making a written decision within 60 days.
(c) As a minimum, the notice shall-
(1) Refer to the contract’s Notice of Intent to Disallow Costs clause;
(2) State the contractor’s name and list the numbers of the affected contracts;
(3) Describe the costs to be disallowed, including estimated dollar value by item and applicable time periods, and state the reasons for the intended disallowance;
(4) Describe the potential impact on billing rates and forward pricing rate agreements;
(5) State the notice’s effective date and the date by which written response must be received;
(6) List the recipients of copies of the notice; and
(7) Request the contractor to acknowledge receipt of the notice.
(d) The contracting officer issuing the notice shall furnish copies to all contracting officers cognizant of any segment of the contractor’s organization.
(e) If the notice involves elements of indirect cost, it shall not be issued without coordination with the contracting officer or auditor having authority for final indirect cost settlement (see 42.705).
(f) In the event the contractor submits a response that disagrees with the notice (see paragraph (b) of this section), the contracting officer who issued the notice shall either withdraw the notice or issue the written decision, except when elements of indirect cost are involved, in which case the contracting officer responsible under 42.705 for determining final indirect cost rates shall issue the decision.