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FAR and DFARS › FAR Part 42: Contract Administration and Audit Services › Subpart 42.7

FAR 42.703-1 Policy.

The codified text (eCFR, as of 2026-10-02). Under the Revolutionary FAR Overhaul ↗, agencies follow class deviations with new text for many parts while the formal rules go through the Federal Register: check the solicitation and your contract's clauses, which rule.

In plain English

This section sets the policy that one agency establishes final indirect cost rates for each business unit, and those rates bind all agencies and contracting offices unless a statute says otherwise. It also says billing rates and final indirect cost rates are used to reimburse indirect costs under cost-reimbursement contracts and to determine progress payments under fixed-price contracts. Final rates are generally used for contract closeout and for settling indirect costs before prices are set, unless the quick-closeout procedure applies.

Applies to: Agencies and their contracting offices dealing with indirect cost rates for business units

What it requires

  • Use a single agency to establish final indirect cost rates for each business unit
  • Treat those final rates as binding on all agencies and contracting offices unless specifically prohibited by statute
  • Do not perform an audit of indirect cost rates if the contracting officer determines the audit objectives can reasonably be met by accepting another Federal department or agency's audit results
  • Use billing rates and final indirect cost rates in reimbursing indirect costs under cost-reimbursement contracts and in determining progress payments under fixed-price contracts

Key terms: final indirect cost rates · business unit · billing rates · cost-reimbursement contracts · quick-closeout procedure

Written by AI from this section's text. A guide, not legal advice: the text below rules.

The text

(a) A single agency (see 42.705-1) shall be responsible for establishing final indirect cost rates for each business unit. These rates shall be binding on all agencies and their contracting offices, unless otherwise specifically prohibited by statute. An agency shall not perform an audit of indirect cost rates when the contracting officer determines that the objectives of the audit can reasonably be met by accepting the results of an audit that was conducted by any other department or agency of the Federal Government (10 U.S.C. 3841(e)and 41 U.S.C. 4706(e)).

(b) Billing rates and final indirect cost rates shall be used in reimbursing indirect costs under cost-reimbursement contracts and in determining progress payments under fixed-price contracts.

(c) To ensure compliance with 10 U.S.C. 3743(a) and 41 U.S.C. 4303(a)—

(1) Final indirect cost rates shall be used for contract closeout for a business unit, unless the quick-closeout procedure in 42.708 is used. These final rates shall be binding for all cost-reimbursement contracts at the business unit, subject to any specific limitation in a contract or advance agreement; and

(2) Established final indirect cost rates shall be used in negotiating the final price of fixed-price incentive and fixed-price redeterminable contracts and in other situations requiring that indirect costs be settled before contract prices are established, unless the quick-closeout procedure in 42.708 is used.

Sections it refers to

  • 42.705-1 Contracting officer determination procedure.
  • 42.708 Quick-closeout procedure.

← 42.703 General. · 42.703-2 Certificate of indirect costs. →

Rule changes for FAR Part 42

Source: eCFR, 48 CFR chapters 1 and 2 (GPO GovInfo bulk data) ↗. Plain words for the terms: glossary.

FAR 42.703-1 Policy · SpendQuery