§4303 Effect of Submission of Unallowable Costs

Summary

Agencies must put language in covered contracts saying that if a contractor files a settlement proposal for indirect costs after the costs were already incurred, any cost in that proposal that the Federal Acquisition Regulation or an agency supplement says is not allowed must be rejected. If the agency finds a cost is clearly not allowed under those cost rules, the contractor will be penalized. The penalty is the disallowed amount allocated to the covered contracts plus interest calculated under the FAR. If the cost was already ruled not allowed for that contractor before they sent the proposal, the penalty is twice the disallowed amount allocated to the covered contracts. The FAR must allow the agency to waive the penalty in three cases: the contractor withdraws the proposal before a formal audit and sends a corrected one; the unallowed amount is tiny; or the contractor shows it has proper policies, training, and controls and that the mistake was accidental. Agency actions under these rules are final decisions and can be appealed as provided by law.