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

FAR 42.709-7 Contract clause.

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 contracting officers when to include the clause at 52.242-3, Penalties for Unallowable Costs, in a solicitation or contract. It matters to contractors because if their contract includes that clause, penalties may apply to unallowable costs. The clause is generally required in covered contracts over $1 million, with certain exceptions.

Applies to: Solicitations and contracts over $1 million, with stated exceptions

Key terms: Penalties for Unallowable Costs · fixed-price contracts without cost incentives · firm-fixed-price contract · commercial products · commercial services

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

The text

Use the clause at 52.242-3, Penalties for Unallowable Costs, in all solicitations and contracts over $1 million except fixed-price contracts without cost incentives or any firm-fixed-price contract for the purchase of commercial products or commercial services. Generally, covered contracts are those which contain one of the clauses at 52.216-7, 52.216-16, or 52.216-17, or a similar clause from an executive agency's supplement to the FAR.

Sections it refers to

  • 52.242-3 Penalties for Unallowable Costs.
  • 52.216-7 Allowable Cost and Payment.
  • 52.216-16 Incentive Price Revision—Firm Target.
  • 52.216-17 Incentive Price Revision—Successive Targets.

Sections that refer to it

  • 52.242-3 Penalties for Unallowable Costs.

← 42.709-6 Waiver of the penalty. · 42.800 Scope of subpart. →

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 42.709-7 Contract clause · SpendQuery