§4303 Effect of submission of unallowable costs

Summary

Federal agencies must put a rule in covered contracts saying that if a contractor later files a proposal to settle indirect costs and includes a cost that the rules say is not allowed, that cost will be rejected. If an agency finds a cost is clearly unallowable under the cost rules, the agency will make the contractor pay a penalty equal to the disallowed amount allocated to the covered contracts plus interest calculated under the Federal Acquisition Regulation (FAR). If the same contractor already had that cost ruled unallowable before filing the proposal, the penalty is 2 times the disallowed amount. The FAR can allow the penalty to be waived if the contractor withdraws the proposal before a formal audit and fixes it, the amount is insignificant, or the contractor shows it has proper policies, training, and controls and the error was inadvertent. Agency actions under these rules are final for purposes of section 7103 and may be appealed under section 7104(a).