Notice of intent to disallow costs
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.