Overview
This section covers FAR Subpart 52.242, which establishes standard clauses for Contract Administration and Audit Services. It outlines the procedural framework for cost disallowance, indirect cost certification, penalties for unallowable costs, and the management of work disruptions such as suspensions, stop-work orders, and government delays.
Key Rules
- Cost Disallowance (52.242-1): The Contracting Officer (CO) may issue a written notice to disallow specific costs at any time. Contractors have 60 days to submit a written justification to challenge the disallowance.
- Penalties for Unallowable Costs (52.242-3): Contractors are subject to financial penalties plus interest if they include "expressly unallowable" costs in indirect cost rate proposals. If a cost was previously determined to be unallowable for that specific contractor, the penalty increases to two times the disallowed cost.
- Indirect Cost Certification (52.242-4): Final indirect cost proposals must be certified using a specific format and signed by a Vice President or the Chief Financial Officer (CFO) to ensure all costs are allowable.
- Small Business Subcontractor Payments (52.242-5): Prime contractors must notify the CO within 14 days if they make reduced or untimely payments to a small business subcontractor.
- Administrative Notifications (52.242-13): Contractors must provide written notification of bankruptcy filings within five days of the initiation of proceedings.
- Work Interruptions (52.242-14, 52.242-15, 52.242-17):
- The Government may suspend work for its convenience (Construction/A-E) or issue a Stop-Work Order (up to 90 days).
- Contractors may be entitled to equitable adjustments for costs (excluding profit for certain delays) if the government-caused delay is unreasonable.
- Strict notice timelines apply: claims for costs incurred more than 20 days prior to written notification of a delay are generally not allowed.
- Reserved Placeholders: Sections 52.242-6 through 52.242-12 and 52.242-16 are designated as "[Reserved]," indicating they are empty placeholders used to maintain the numerical sequence of the FAR.
Practical Implications
- Strict Compliance Timelines: Contractors face high risks if they miss notice windows, such as the 5-day requirement for bankruptcy or the 20-day requirement for reporting government delays; failure to comply can result in the forfeiture of claims.
- Financial Risk Management: The certification and penalty clauses (52.242-3 and 52.242-4) necessitate rigorous internal accounting audits, as the CFO/VP is personally certifying the allowability of costs under penalty of law and significant financial assessments.
- Documentation for Equitable Adjustments: During stop-work orders or delays, contractors must proactively minimize costs and maintain detailed records to justify price or schedule adjustments once work resumes.