52.242-1 Notice of Intent to Disallow Costs
Source: FAR 52.242-1 on acquisition.gov
FAR 52.242-1 gives contractors a formal process to contest disallowed costs, but requires timely written response and justification to protect their interests.
Overview
FAR 52.242-1, Notice of Intent to Disallow Costs, establishes the process by which a Contracting Officer can formally notify a contractor that certain costs incurred or planned under a contract are considered unallowable. This clause applies to cost-reimbursement, fixed-price incentive, and price redetermination contracts. It ensures both parties have a clear, documented process for disputing and resolving cost allowability issues during contract performance.
Key Rules
- Written Notice Requirement
- The Contracting Officer may issue a written notice to the contractor identifying specific costs that are determined to be unallowable under the contract terms.
- Contractor Response and Justification
- Upon receiving the notice, the contractor has the right to submit a written response with justification for why the costs should be allowed. The contractor must respond within 60 days.
- Government Decision Timeline
- If the contractor responds, the Contracting Officer must, within 60 days, either withdraw the notice or issue a written decision regarding the costs.
- Government Rights Preserved
- The Government retains the right to challenge costs even if a notice is not issued under this clause.
Responsibilities
- Contracting Officers: Must issue written notices for disallowed costs and respond to contractor justifications within specified timeframes.
- Contractors: Must respond in writing within 60 days if they wish to contest the notice and provide justification for the costs.
- Agencies: Ensure proper documentation and adherence to dispute resolution timelines.
Practical Implications
- This clause provides a formal mechanism for addressing cost allowability disputes, helping prevent misunderstandings and ensuring due process.
- Contractors must be diligent in tracking cost allowability and responding promptly to notices to protect their interests.
- Failure to respond or justify costs may result in permanent disallowance, while the Government’s rights to challenge costs are preserved regardless of notice issuance.
As prescribed in 42.802 , insert the following clause in solicitations and contracts when a cost-reimbursement contract, a fixed-price incentive contract, or a contract providing for price redetermination is contemplated:
Notice of Intent to Disallow Costs (Apr 1984)
(a) Notwithstanding any other clause of this contract-
(1) The Contracting Officer may at any time issue to the Contractor a written notice of intent to disallow specified costs incurred or planned for incurrence under this contract that have been determined not to be allowable under the contract terms; and
(2) The Contractor may, after receiving a notice under paragraph (a)(1) of this clause, submit a written response to the Contracting Officer, with justification for allowance of the costs. If the Contractor does respond within 60 days, the Contracting Officer shall, within 60 days of receiving the response, either make a written withdrawal of the notice or issue a written decision.
(b) Failure to issue a notice under this Notice of Intent to Disallow Costs clause shall not affect the Government’s rights to take exception to incurred costs.
(End of clause)