FAR 52.242-3 - Penalties for Unallowable Costs

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Prescribed in 42.709-6
Effective Date:	1 May 2014
Clause or Provision:	Clause
Provision or Clause Number:	52.242-3 - Penalties for Unallowable Costs
Principle Type And/Or Purpose of Contract:
Required:
Applicable:	Cost Reimbursement Research and Development; Cost Reimbursement Supply; Cost Reimbursement Service; Cost Reimbursement Construction; Time and Materials/Labor Hour; Leasing of Motor Vehicles; Communication Services; Dismantling, Demolition, or Removal of Improvements; Architect-Engineering; Indefinite Delivery; Transportation;
Optional:	Fixed Price Service; Fixed Price Construction; Facilities; Simplified Acquisition Procedures; Utility Services;
Subject:
ProcurementType:
Contract Threshold:
Prescription Overview:
Clause Overview:	(a) Definition “Proposal,” as used in this clause, means either— (1) A final indirect cost rate proposal submitted by the Contractor after the expiration of its fiscal year which— (i) Relates to any payment made on the basis of billing rates; or (ii) Will be used in negotiating the final contract price; or (2) The final statement of costs incurred and estimated to be incurred under the Incentive Price Revision clause (if applicable), which is used to establish the final contract price. (b) Contractors which include unallowable indirect costs in a proposal may be subject to penalties. The penalties are prescribed in 10 U.S.C. 2324 or 41 U.S.C. chapter 43, as applicable, which is implemented in Section 42.709 of the Federal Acquisition Regulation (FAR). (c) The Contractor shall not include in any proposal any cost that is unallowable, as defined in Subpart 2.1 of the FAR, or an executive agency supplement to the FAR. (d) If the Contracting Officer determines that a cost submitted by the Contractor in its proposal is expressly unallowable under a cost principle in the FAR, or an executive agency supplement to the FAR, that defines the allowability of specific selected costs, the Contractor shall be assessed a penalty equal to— (1) The amount of the disallowed cost allocated to this contract; plus (2) Simple interest, to be computed— (i) On the amount the Contractor was paid (whether as a progress or billing payment) in excess of the amount to which the Contractor was entitled; and (ii) Using the applicable rate effective for each six-month interval prescribed by the Secretary of the Treasury pursuant to Pub. L. 92-41 (85 Stat. 97). (e) If the Contracting Officer determines that a cost submitted by the Contractor in its proposal includes a cost previously determined to be unallowable for that Contractor, then the Contractor will be assessed a penalty in an amount equal to two times the amount of the disallowed cost allocated to this contract. (f) Determinations under paragraphs (d) and (e) of this clause are final decisions within the meaning of 41 U.S.C. chapter 71, Contract Disputes. (g) Pursuant to the criteria in FAR 42.709-5, the Contracting Officer may waive the penalties in paragraph (d) or (e) of this clause. (h) Payment by the Contractor of any penalty assessed under this clause does not constitute repayment to the Government of any unallowable cost which has been paid by the Government to the Contractor.
Important Notes/Requirements:	In all solicitations and contracts over $700,000 except fixed-price contracts without cost incentives or any firm fixed-price contract for the purchase of commercial items.Generally, covered contracts are those which contain one ofthe clauses at 52.216-7, 52.216-16, or 52.216-17, or a similarclause from an executive agency's supplement to the FAR.
Subcontract Threshold:
Incorporated by Reference:	Yes
Uniform Contract Format:	I
Editor:	Marshall

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Personal notes.