Allowable Cost and Payment
FAR 52.216-7 requires contractors on cost-reimbursement contracts to follow strict invoicing, cost documentation, and indirect cost rate procedures to ensure only allowable costs are reimbursed and to facilitate timely contract closeout.
Overview
FAR 52.216-7, Allowable Cost and Payment, is a mandatory clause for cost-reimbursement contracts. It establishes the rules for invoicing, reimbursement of allowable costs, submission and settlement of indirect cost rates, and final payment procedures. The clause details what costs are reimbursable, the timing and format of payment requests, and the documentation required to support claimed costs. It also outlines the process for establishing final indirect cost rates, including the submission of a comprehensive proposal with supporting data within six months after the contractor’s fiscal year ends. The clause provides for government audits, quick-closeout procedures, and specifies the contractor’s obligations to refund or credit any overpayments or rebates. Alternate versions of the clause apply to construction, educational institutions, state/local governments, and nonprofit organizations, referencing the appropriate cost principles.
Key Rules
- Invoicing and Payment Frequency
- Contractors may invoice as work progresses, but not more than every two weeks (except small businesses, which may invoice more frequently). Payments are based on allowable costs as determined by the Contracting Officer.
- Allowable and Reimbursable Costs
- Only costs paid or incurred in accordance with FAR cost principles are reimbursable. Special rules apply for pension and benefit plan contributions.
- Indirect Cost Rate Proposal
- Contractors must submit a final indirect cost rate proposal within six months after their fiscal year ends, including detailed supporting data.
- Audit and Adjustment
- The government may audit invoices and adjust payments for unallowable costs or over/underpayments.
- Final Payment and Closeout
- Contractors must submit a completion invoice within 120 days after final indirect cost rates are settled. Any refunds, rebates, or credits must be returned to the government.
- Alternate Clauses
- Alternate versions reference different cost principles for construction, educational institutions, state/local governments, and nonprofits.
Responsibilities
- Contracting Officers: Determine allowable costs, establish billing and final indirect cost rates, audit invoices, and process final payments.
- Contractors: Submit timely and accurate invoices, maintain detailed cost records, submit indirect cost rate proposals, update billings, and return any overpayments or credits.
- Agencies: Oversee compliance, conduct audits, and enforce cost principles and payment procedures.
Practical Implications
- This clause ensures contractors are reimbursed only for allowable, allocable, and reasonable costs, with strict documentation and audit requirements. Failure to comply can delay payments or result in disallowed costs. Contractors must maintain robust accounting systems and be diligent in preparing indirect cost rate proposals and supporting documentation. Timely submission and accurate recordkeeping are critical to avoid disputes and ensure prompt contract closeout.