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

FAR 42.709-5 Computing interest.

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 how interest is calculated on any paid portion of a disallowed cost under FAR 42.709-2(a)(1)(ii). It matters to contractors because it sets the starting point, rate, and end date used to figure the interest owed on an overpayment.

Applies to: Contractors with a paid portion of a disallowed cost under FAR 42.709-2(a)(1)(ii)

What it requires

  • Treat the overpayment as occurring, and interest as beginning, at the midpoint of the contractor's fiscal year
  • Use an alternate equitable method if the cost was not paid evenly over the fiscal year
  • Use the interest rate specified by the Secretary of the Treasury under Pub. L. 92-41
  • Compute interest from the date of overpayment to the date of the demand letter for payment of the penalty

Key terms: overpayment · interest · midpoint of the contractor's fiscal year · alternate equitable method · disallowed costs

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

The text

For 42.709-2(a)(1)(ii), compute interest on any paid portion of the disallowed cost as follows:

(a) Consider the overpayment to have occurred, and interest to have begun accumulating, from the midpoint of the contractor's fiscal year. Use an alternate equitable method if the cost was not paid evenly over the fiscal year.

(b) Use the interest rate specified by the Secretary of the Treasury pursuant to Pub. L. 92-41 (85 Stat. 97).

(c) Compute interest from the date of overpayment to the date of the demand letter for payment of the penalty.

(d) Determine the paid portion of the disallowed costs in consultation with the contract auditor.

Sections it refers to

← 42.709-4 Assessing the penalty. · 42.709-6 Waiver of the penalty. →

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 42.709-5 Computing interest · SpendQuery