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

FAR 42.709-4 Assessing the penalty.

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 tells the contracting officer when they must assess a penalty on a contractor for submitting unallowable costs. A penalty applies if the cost is expressly unallowable under a cost principle, or if the contractor already knew the cost was unallowable before submitting the proposal. The officer then issues a final decision demanding payment of the penalty.

Applies to: Cognizant contracting officers assessing penalties on contractors

What it requires

  • Assess the penalty when the submitted cost is expressly unallowable under a FAR or agency supplement cost principle
  • Assess the penalty when the cost was already determined unallowable for that contractor before the proposal was submitted
  • Issue a final decision that includes a demand for payment of any penalty assessed
  • State in the letter that the determination is a final decision under the Disputes clause of the contract

Key terms: penalty · expressly unallowable · cognizant contracting officer · final decision · Disputes clause

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

The text

Unless a waiver is granted pursuant to 42.709-6, the cognizant contracting officer shall—

(a) Assess the penalty in 42.709-2(a)(1), when the submitted cost is expressly unallowable under a cost principle in the FAR or an executive agency supplement that defines the allowability of specific selected costs; or

(b) Assess the penalty in 42.709-2(a)(2), when the submitted cost was determined to be unallowable for that contractor prior to submission of the proposal. Prior determinations of unallowability may be evidenced by—

(1) A DCAA Form 1, Notice of Contract Costs Suspended and/or Disapproved (see 48 CFR 242.705-2), or any similar notice which the contractor elected not to appeal and was not withdrawn by the cognizant Government agency;

(2) A contracting officer final decision which was not appealed;

(3) A prior executive agency Board of Contract Appeals or court decision involving the contractor, which upheld the cost disallowance; or

(4) A determination or agreement of unallowability under 31.201-6.

(c) Issue a final decision (see 33.211) which includes a demand for payment of any penalty assessed under paragraph (a) or (b) of this section. The letter shall state that the determination is a final decision under the Disputes clause of the contract. (Demanding payment of the penalty is separate from demanding repayment of any paid portion of the disallowed cost.)

Sections it refers to

← 42.709-3 Responsibilities. · 42.709-5 Computing interest. →

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 42.709-4 Assessing the penalty · SpendQuery