SpendQueryBeta

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

FAR 42.705-2 Auditor determination procedure.

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 explains when the Government auditor, rather than the contracting officer, sets a contractor's final indirect cost rates. It also lists the steps the auditor follows after receiving an adequate indirect cost rate proposal, including auditing it, seeking agreement with the contractor, and signing an indirect cost rate agreement. It matters because it determines who settles your indirect rates and what process you can expect.

Applies to: Contractors with business units whose final indirect cost rates are set by the cognizant Government auditor

What it requires

  • Submit a final indirect cost rate proposal to the cognizant contracting officer (or cognizant Federal agency official) and the auditor in accordance with 42.705-1(b)(1)
  • Sign the indirect cost rate agreement prepared by the auditor if agreement on indirect costs is reached

Key terms: final indirect cost rates · cognizant Government auditor · business unit · indirect cost rate proposal · indirect cost rate agreement

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

The text

(a) Applicability and responsibility. (1) The cognizant Government auditor shall establish final indirect cost rates for business units not covered in 42.705-1(a).

(2) In addition, auditor determination may be used for business units that are covered in 42.705-1(a) when the contracting officer (or cognizant Federal agency official) and auditor agree that the indirect costs can be settled with little difficulty and any of the following circumstances apply:

(i) The business unit has primarily fixed-price contracts, with only minor involvement in cost-reimbursement contracts.

(ii) The administrative cost of contracting officer determination would exceed the expected benefits.

(iii) The business unit does not have a history of disputes and there are few cost problems.

(iv) The contracting officer (or cognizant Federal agency official) and auditor agree that special circumstances require auditor determination.

(b) Procedures. (1) The contractor shall submit to the cognizant contracting officer (or cognizant Federal agency official) and auditor a final indirect cost rate proposal in accordance with 42.705-1(b)(1).

(2) Once a proposal has been determined to be adequate for audit in support of negotiating final indirect cost rates, the auditor shall—

(i) Audit the proposal and prepare an advisory audit report, including a listing of any relevant advance agreements or restrictive terms of specific contracts;

(ii) Seek agreement on indirect costs with the contractor;

(iii) Prepare an indirect cost rate agreement conforming to the requirements of the contracts. The agreement shall be signed by the contractor and the auditor;

(iv) If agreement with the contractor is not reached, forward the audit report to the contracting officer (or cognizant Federal agency official) identified in the Directory of Contract Administration Services Components (see 42.203), who will then resolve the disagreement; and

(v) Distribute resulting documents in accordance with 42.706.

Sections it refers to

  • 42.705-1 Contracting officer determination procedure.
  • 42.203 Contract administration services directory.
  • 42.706 Distribution of documents.

Sections that refer to it

← 42.705-1 Contracting officer determination procedure. · 42.705-3 Educational institutions. →

Rule changes for FAR Part 42

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