Overview
This section establishes the policy for determining final indirect cost rates through a single-agency approach and mandates contractor certification of those costs to ensure accountability and consistency across the Federal Government. It outlines the application of these rates to various contract types and the penalties associated with the submission of unallowable costs.
Key Rules
- Single Agency Responsibility: One agency is responsible for establishing final indirect cost rates for a business unit, and those rates are binding on all other federal agencies to prevent redundant audits.
- Application of Rates: Established rates must be used for reimbursements under cost-reimbursement contracts, progress payments on fixed-price contracts, and for the final closeout of contracts (unless quick-closeout procedures apply).
- Certification Requirement: A contractor must submit a "Certificate of Indirect Costs" before any agreement can be made on final rates; the government is prohibited from accepting a proposal without this certification.
- Unilateral Rate Setting: If a contractor fails to certify their proposal, the Contracting Officer (CO) may unilaterally establish the rates, typically setting them low enough to ensure no unallowable costs are reimbursed.
- Waiver Authority: Agency heads may waive the certification requirement for specific entities, such as foreign governments, state/local governments, educational institutions, and nonprofit organizations.
- Penalties and Legal Action: Submission of unallowable costs in a rate proposal can lead to statutory penalties, and suspected false certifications require the CO to consult with legal counsel for potential fraud investigations.
Practical Implications
- Administrative Consistency: Contractors benefit from a "one-stop-shop" audit process where a single rate agreement applies to their entire federal portfolio, but they must ensure their accounting systems are robust enough to pass this single, binding audit.
- Compliance Risk: Failure to properly certify indirect cost proposals or the inclusion of unallowable costs can result in significant financial hits through "low-ball" unilateral rates or the imposition of heavy administrative penalties.