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

FAR 42.709-2 General.

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 out penalties when indirect costs are disallowed on covered contracts. If a cost is expressly unallowable under a FAR cost principle, the contractor may owe the disallowed amount plus interest; if the cost was already determined unallowable for that contractor before the proposal was submitted, the penalty doubles. These penalties are separate from and in addition to other legal penalties.

Applies to: contracts covered by this section and contractors submitting indirect cost proposals

Key terms: indirect cost · expressly unallowable · cost principle · indirect cost proposal · disallowed costs

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

The text

(a) The following penalties apply to contracts covered by this section:

(1) If the indirect cost is expressly unallowable under a cost principle in the FAR, or an executive agency supplement to the FAR, that defines the allowability of specific selected costs, the penalty is equal to—

(i) The amount of the disallowed costs allocated to contracts that are subject to this section for which an indirect cost proposal has been submitted; plus

(ii) Interest on the paid portion, if any, of the disallowance.

(2) If the indirect cost was determined to be unallowable for that contractor before proposal submission, the penalty is two times the amount in paragraph (a)(1)(i) of this section.

(b) These penalties are in addition to other administrative, civil, and criminal penalties provided by law.

(c) It is not necessary for unallowable costs to have been paid to the contractor in order to assess a penalty.

Sections that refer to it

← 42.709-1 Scope. · 42.709-3 Responsibilities. →

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 42.709-2 General · SpendQuery