FAR Part 42: Contract Administration and Audit Services

In plain English

FAR Part 42 covers how the Government assigns and performs contract administration and audit services, including postaward orientation, indirect cost rates, and performance monitoring. It matters because it determines which office oversees your contract, how your indirect costs are settled, and what information you must provide during performance.

Key rules

• Agencies must avoid duplicate audits, reviews, inspections, and examinations of contractors or subcontractors by using interagency agreements. (42.002)
• The cognizant Federal agency for a contractor is normally the agency with the largest dollar amount of negotiated contracts, including options. (42.003)
• The contract administration office performs delegated functions such as postaward orientation, production surveillance, and evaluating contractor performance. (42.302, 42.301)
• A postaward orientation helps both parties understand contract requirements and identify potential problems, but it is not a substitute for a preaward survey. (42.501)
• A single agency is responsible for establishing final indirect cost rates for each business unit, and those rates are binding on all agencies unless otherwise specified. (42.703-1)
• Contractors must certify their indirect cost proposals, and the Government cannot accept a proposal or agree to final rates without that certification. (42.703-2)
• Penalties apply if a contractor includes expressly unallowable indirect costs in a final indirect cost rate proposal or final statement of costs. (42.709-1, 42.709-2)
• The contracting officer must insert the Bankruptcy clause in solicitations and contracts exceeding the simplified acquisition threshold. (42.903)

Who does what

In practice

• Know which contract administration office (CAO) is assigned to your contract, as it will handle many day-to-day administration functions.
• Be prepared for a postaward orientation conference or letter, which helps clarify requirements and resolve potential problems early.
• Ensure your indirect cost proposals are certified and accurate to avoid penalties for unallowable costs.
• If your company undergoes a name change or asset transfer, submit a written request to the responsible contracting officer to execute the appropriate agreement.

Common pitfalls

• Assuming that a postaward conference can change the contract; the chairperson will emphasize that it is not for that purpose unless a change is contemplated.
• Failing to certify an indirect cost proposal, which prevents the Government from accepting it or agreeing to final rates.
• Including expressly unallowable costs in an indirect cost proposal, which can trigger penalties.
• Not notifying the contracting officer of bankruptcy proceedings, which can jeopardize the Government's interests and your contract.

Written by AI from this part's codified text (2026-10-04); cited sections are checked against the part. A guide, not legal advice: the regulation text, the solicitation and your contract rule.