§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 that proposal includes costs that are not allowed under a Federal Acquisition Regulation (FAR) cost rule, those costs must be rejected. If the agency finds a cost in the proposal is clearly unallowable under a specific FAR cost rule, the contractor will be charged a penalty equal to the disallowed amount allocated to the covered contracts plus interest (calculated under the FAR). If the cost was already found unallowable for that contractor before the proposal, the penalty is 2 times the disallowed amount allocated to covered contracts. The FAR can allow the penalty to be waived if the contractor withdraws the proposal before a government audit and resubmits, if the unallowable amount is insignificant, or if the contractor shows it had proper policies, training, and controls and the mistake was accidental. Agency actions under these rules count as a final decision under section 7103 and can be appealed under section 7104(a).