1. U.S. Code
  2. title 41
  3. subtitle I
  4. chapter 43
  5. § 4305

Collapse to view only § 4305. Required regulations

§ 4301. Definitions
In this chapter:
(1)Compensation.—The term “compensation”, for a fiscal year, means the total amount of wages, salary, bonuses, and deferred compensation for the fiscal year, whether paid, earned, or otherwise accruing, as recorded in an employer’s cost accounting records for the fiscal year.
(2)Covered contract.—The term “covered contract” means a contract for an amount in excess of $500,000 that is entered into by an executive agency, except that the term does not include a fixed-price contract without cost incentives or any firm fixed-price contract for the purchase of commercial products or commercial services.
(3)Fiscal year.—The term “fiscal year” means a fiscal year established by a contractor for accounting purposes.
(4)Senior executive.—The term “senior executive”, with respect to a contractor, means the 5 most highly compensated employees in management positions at each home office and each segment of the contractor.
(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3784; Pub. L. 115–232, div. A, title VIII, § 836(b)(17), Aug. 13, 2018, 132 Stat. 1864.)

CITE AS: 41 USC 4301

§ 4302. Adjustment of threshold amount of covered contract

Effective on October 1 of each year that is divisible by 5, the amount set forth in section 4301(2) of this title shall be adjusted to the equivalent amount in constant fiscal year 1994 dollars. An adjusted amount that is not evenly divisible by $50,000 shall be rounded to the nearest multiple of $50,000. If an amount is evenly divisible by $25,000 but is not evenly divisible by $50,000, the amount shall be rounded to the next higher multiple of $50,000.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3784.)

CITE AS: 41 USC 4302

§ 4303. Effect of submission of unallowable costs
(a)Indirect Cost That Violates Federal Acquisition Regulation Cost Principle.—An executive agency shall require that a covered contract provide that if the contractor submits to the executive agency a proposal for settlement of indirect costs incurred by the contractor for any period after those costs have been accrued and if that proposal includes the submission of a cost that is unallowable because the cost violates a cost principle in the Federal Acquisition Regulation or an executive agency supplement to the Federal Acquisition Regulation, the cost shall be disallowed.
(b)Penalty for Violation of Cost Principle.—
(1)Unallowable cost in proposal.—If the executive agency determines that a cost submitted by a contractor in its proposal for settlement is expressly unallowable under a cost principle referred to in subsection (a) that defines the allowability of specific selected costs, the executive agency shall assess a penalty against the contractor in an amount equal to—
(A) the amount of the disallowed cost allocated to covered contracts for which a proposal for settlement of indirect costs has been submitted; plus
(B) interest (to be computed based on provisions in the Federal Acquisition Regulation) to compensate the Federal Government for the use of the amount which a contractor has been paid in excess of the amount to which the contractor was entitled.
(2)Cost determined to be unallowable before proposal submitted.—If the executive agency determines that a proposal for settlement of indirect costs submitted by a contractor includes a cost determined to be unallowable in the case of that contractor before the submission of that proposal, the executive agency shall assess a penalty against the contractor in an amount equal to 2 times the amount of the disallowed cost allocated to covered contracts for which a proposal for settlement of indirect costs has been submitted.
(c)Waiver of Penalty.—The Federal Acquisition Regulation shall provide for a penalty under subsection (b) to be waived in the case of a contractor’s proposal for settlement of indirect costs when—
(1) the contractor withdraws the proposal before the formal initiation of an audit of the proposal by the Federal Government and resubmits a revised proposal;
(2) the amount of unallowable costs subject to the penalty is insignificant; or
(3) the contractor demonstrates, to the contracting officer’s satisfaction, that—
(A) it has established appropriate policies and personnel training and an internal control and review system that provide assurances that unallowable costs subject to penalties are precluded from being included in the contractor’s proposal for settlement of indirect costs; and
(B) the unallowable costs subject to the penalty were inadvertently incorporated into the proposal.
(d)Applicability of Contract Disputes Procedure.—An action of an executive agency under subsection (a) or (b)—
(1) shall be considered a final decision for the purposes of section 7103 of this title; and
(2) is appealable in the manner provided in section 7104(a) of this title.
(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3784.)

CITE AS: 41 USC 4303

§ 4304. Specific costs not allowable
(a)Specific Costs.—The following costs are not allowable under a covered contract:
(1) Costs of entertainment, including amusement, diversion, and social activities, and any costs directly associated with those costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities).
(2) Costs incurred to influence (directly or indirectly) legislative action on any matter pending before Congress, a State legislature, or a legislative body of a political subdivision of a State.
(3) Costs incurred in defense of any civil or criminal fraud proceeding or similar proceeding (including filing of any false certification) brought by the Federal Government where the contractor is found liable or had pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certification).
(4) Payments of fines and penalties resulting from violations of, or failure to comply with, Federal, State, local, or foreign laws and regulations, except when incurred as a result of compliance with specific terms and conditions of the contract or specific written instructions from the contracting officer authorizing in advance those payments in accordance with applicable provisions of the Federal Acquisition Regulation.
(5) Costs of membership in any social, dining, or country club or organization.
(6) Costs of alcoholic beverages.
(7) Contributions or donations, regardless of the recipient.
(8) Costs of advertising designed to promote the contractor or its products.
(9) Costs of promotional items and memorabilia, including models, gifts, and souvenirs.
(10) Costs for travel by commercial aircraft that exceed the amount of the standard commercial fare.
(11) Costs incurred in making any payment (commonly known as a “golden parachute payment”) that is—
(A) in an amount in excess of the normal severance pay paid by the contractor to an employee on termination of employment; and
(B) paid to the employee contingent on, and following, a change in management control over, or ownership of, the contractor or a substantial portion of the contractor’s assets.
(12) Costs of commercial insurance that protects against the costs of the contractor for correction of the contractor’s own defects in materials or workmanship.
(13) Costs of severance pay paid by the contractor to foreign nationals employed by the contractor under a service contract performed outside the United States, to the extent that the amount of severance pay paid in any case exceeds the amount paid in the industry involved under the customary or prevailing practice for firms in that industry providing similar services in the United States, as determined under the Federal Acquisition Regulation.
(14) Costs of severance pay paid by the contractor to a foreign national employed by the contractor under a service contract performed in a foreign country if the termination of the employment of the foreign national is the result of the closing of, or the curtailment of activities at, a Federal Government facility in that country at the request of the government of that country.
(15) Costs incurred by a contractor or subcontractor, or personal service 1
1 So in original. Probably should be “services”.
contractor in connection with any criminal, civil, or administrative proceeding commenced by the Federal Government or a State, to the extent provided in section 4310 of this title.
(16)2
2 So in original. Two pars. (16) have been enacted.
Costs of compensation of any contractor employee for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds $625,000 adjusted annually for the U.S. Bureau of Labor Statistics Employment Cost Index for total compensation for private industry workers, by occupational and industry group not seasonally adjusted, except that the executive agency may establish exceptions for positions in the science, technology, engineering, mathematics, medical, and cybersecurity fields and other fields requiring unique areas of expertise upon a determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.
(16)2 Costs of compensation of contractor and subcontractor employees for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds $487,000 per year, adjusted annually to reflect the change in the Employment Cost Index for all workers, as calculated by the Bureau of Labor Statistics, except that the head of an executive agency may establish one or more narrowly targeted exceptions for scientists, engineers, or other specialists upon a determination that such exceptions are needed to ensure that the executive agency has continued access to needed skills and capabilities.
(b)Waiver of Severance Pay Restrictions for Foreign Nationals.—
(1)Executive agency determination.—Pursuant to the Federal Acquisition Regulation and subject to the availability of appropriations, an executive agency, in awarding a covered contract, may waive the application of paragraphs (13) and (14) of subsection (a) to that contract if the executive agency determines that—
(A) the application of those provisions to that contract would adversely affect the continuation of a program, project, or activity that provides significant support services for employees of the executive agency posted outside the United States;
(B) the contractor has taken (or has established plans to take) appropriate actions within the contractor’s control to minimize the amount and number of incidents of the payment of severance pay by the contractor to employees under the contract who are foreign nationals; and
(C) the payment of severance pay is necessary to comply with a law that is generally applicable to a significant number of businesses in the country in which the foreign national receiving the payment performed services under the contract or is necessary to comply with a collective bargaining agreement.
(2)Solicitation to include statement about waiver.—An executive agency shall include in the solicitation for a covered contract a statement indicating—
(A) that a waiver has been granted under paragraph (1) for the contract; or
(B) whether the executive agency will consider granting a waiver and, if the executive agency will consider granting a waiver, the criteria to be used in granting the waiver.
(3)Determination to be made before contract awarded.—An executive agency shall make the final determination whether to grant a waiver under paragraph (1) with respect to a covered contract before award of the contract.
(c)Establishment of Definitions, Exclusions, Limitations, and Qualifications.—The provisions of the Federal Acquisition Regulation implementing this chapter may establish appropriate definitions, exclusions, limitations, and qualifications. A submission by a contractor of costs that are incurred by the contractor and that are claimed to be allowable under Department of Energy management and operating contracts shall be considered a proposal for settlement of indirect costs incurred by the contractor for any period after those costs have been accrued.
(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3785; Pub. L. 113–66, div. A, title VIII, § 811(b), Dec. 26, 2013, 127 Stat. 806; Pub. L. 113–67, div. A, title VII, § 702(a)(1), Dec. 26, 2013, 127 Stat. 1189; Pub. L. 114–261, § 1(b)(2)(B), Dec. 14, 2016, 130 Stat. 1363.)

CITE AS: 41 USC 4304

§ 4305. Required regulations
(a)In General.—The Federal Acquisition Regulation shall contain provisions on the allowability of contractor costs. Those provisions shall define in detail and in specific terms the costs that are unallowable, in whole or in part, under covered contracts.
(b)Specific Items.—The regulations shall, at a minimum, clarify the cost principles applicable to contractor costs of the following:
(1) Air shows.
(2) Membership in civic, community, and professional organizations.
(3) Recruitment.
(4) Employee morale and welfare.
(5) Actions to influence (directly or indirectly) executive branch action on regulatory and contract matters (other than costs incurred in regard to contract proposals pursuant to solicited or unsolicited bids).
(6) Community relations.
(7) Dining facilities.
(8) Professional and consulting services, including legal services.
(9) Compensation.
(10) Selling and marketing.
(11) Travel.
(12) Public relations.
(13) Hotel and meal expenses.
(14) Expense of corporate aircraft.
(15) Company-furnished automobiles.
(16) Advertising.
(17) Conventions.
(c)Additional Requirements.—
(1)When questioned costs may be resolved.—The Federal Acquisition Regulation shall require that a contracting officer not resolve any questioned costs until the contracting officer has obtained—
(A) adequate documentation of those costs; and
(B) the opinion of the contract auditor on the allowability of those costs.
(2)Presence of contract auditor.—The Federal Acquisition Regulation shall provide that, to the maximum extent practicable, a contract auditor be present at any negotiation or meeting with the contractor regarding a determination of the allowability of indirect costs of the contractor.
(3)Settlement to reflect amount of individual questioned costs.—The Federal Acquisition Regulation shall require that all categories of costs designated in the report of a contract auditor as questioned with respect to a proposal for settlement be resolved in a manner so that the amount of the individual questioned costs that are paid will be reflected in the settlement.
(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3787.)

CITE AS: 41 USC 4305

§ 4306. Applicability of regulations to subcontractors

The regulations referred to in sections 4304 and 4305(a) and (b) of this title shall require prime contractors of a covered contract, to the maximum extent practicable, to apply the provisions of those regulations to all subcontractors of the covered contract.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3788.)

CITE AS: 41 USC 4306

§ 4307. Contractor certification
(a)Content and Form.—A proposal for settlement of indirect costs applicable to a covered contract shall include a certification by an official of the contractor that, to the best of the certifying official’s knowledge and belief, all indirect costs included in the proposal are allowable. The certification shall be in a form prescribed in the Federal Acquisition Regulation.
(b)Waiver.—An executive agency may, in an exceptional case, waive the requirement for certification under subsection (a) in the case of a contract if the agency—
(1) determines that it would be in the interest of the Federal Government to waive the certification; and
(2) states in writing the reasons for the determination and makes the determination available to the public.
(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3788.)

CITE AS: 41 USC 4307

§ 4308. Penalties for submission of cost known to be unallowable

The submission to an executive agency of a proposal for settlement of costs for any period after those costs have been accrued that includes a cost that is expressly specified by statute or regulation as being unallowable, with the knowledge that the cost is unallowable, is subject to section 287 of title 18 and section 3729 of title 31.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3788.)

CITE AS: 41 USC 4308

§ 4309. Burden of proof on contractor

In a proceeding before a board of contract appeals, the United States Court of Federal Claims, or any other Federal court in which the reasonableness of indirect costs for which a contractor seeks reimbursement from the Federal Government is in issue, the burden of proof is on the contractor to establish that those costs are reasonable.

(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3788.)

CITE AS: 41 USC 4309

§ 4310. Proceeding costs not allowable
(a)Definitions.—In this section:
(1)Costs.—The term “costs”, with respect to a proceeding, means all costs incurred by a contractor, subcontractor, or personal services contractor, whether before or after the commencement of the proceeding, including—
(A) administrative and clerical expenses;
(B) the cost of legal services, including legal services performed by an employee of the contractor, subcontractor, or personal services contractor;
(C) the cost of the services of accountants and consultants retained by the contractor, subcontractor, or personal services contractor; and
(D) the pay of directors, officers, and employees of the contractor, subcontractor, or personal services contractor for time devoted by those directors, officers, and employees to the proceeding.
(2)Penalty.—The term “penalty” does not include restitution, reimbursement, or compensatory damages.
(3)Proceeding.—The term “proceeding” includes an investigation.
(b)In General.—Except as otherwise provided in this section, costs incurred by a contractor, subcontractor, or personal services contractor in connection with a criminal, civil, or administrative proceeding commenced by the Federal Government, by a State, or by a contractor, subcontractor, or personal services contractor or grantee employee submitting a complaint under section 4712 of this title are not allowable as reimbursable costs under a covered contract, subcontract, or personal services contract if the proceeding—
(1) relates to a violation of, or failure to comply with, a Federal or State statute or regulation or to any other activity described in section 4712(a)(1) of this title; and
(2) results in a disposition described in subsection (c).
(c)Covered Dispositions.—A disposition referred to in subsection (b)(2) is any of the following:
(1) In a criminal proceeding, a conviction (including a conviction pursuant to a plea of nolo contendere) by reason of the violation or failure referred to in subsection (b).
(2) In a civil or administrative proceeding involving an allegation of fraud or similar misconduct, a determination of contractor, subcontractor, or personal services contractor liability on the basis of the violation or failure referred to in subsection (b).
(3) In any civil or administrative proceeding, the imposition of a monetary penalty or an order to take corrective action under section 4712 of this title by reason of the violation or failure referred to in subsection (b).
(4) A final decision to do any of the following, by reason of the violation or failure referred to in subsection (b):
(A) Debar or suspend the contractor, subcontractor, or personal services contractor.
(B) Rescind or void the contract, subcontract, or personal services contract.
(C) Terminate the contract, subcontract, or personal services contract for default.
(5) A disposition of the proceeding by consent or compromise if the disposition could have resulted in a disposition described in paragraph (1), (2), (3), or (4).
(d)Costs Allowed by Settlement Agreement in Proceeding Commenced by Federal Government.—In the case of a proceeding referred to in subsection (b) that is commenced by the Federal Government and is resolved by consent or compromise pursuant to an agreement entered into by a contractor, subcontractor, or personal services contractor and the Federal Government, the costs incurred by the contractor, subcontractor, or personal services contractor in connection with the proceeding that are otherwise not allowable as reimbursable costs under subsection (b) may be allowed to the extent specifically provided in that agreement.
(e)Costs Specifically Authorized by Executive Agency in Proceeding Commenced by State.—In the case of a proceeding referred to in subsection (b) that is commenced by a State, the executive agency that awarded the covered contract, subcontract, or personal services contract involved in the proceeding may allow the costs incurred by the contractor, subcontractor, or personal services contractor in connection with the proceeding as reimbursable costs if the executive agency determines, in accordance with the Federal Acquisition Regulation, that the costs were incurred as a result of—
(1) a specific term or condition of the contract, subcontract, or personal services contract; or
(2) specific written instructions of the executive agency.
(f)Other Allowable Costs.—
(1)In general.—Except as provided in paragraph (3), costs incurred by a contractor, subcontractor, or personal services contractor in connection with a criminal, civil, or administrative proceeding commenced by the Federal Government or a State in connection with a covered contract, subcontract, or personal services contract may be allowed as reimbursable costs under the contract, subcontract, or personal services contract if the costs are not disallowable under subsection (b), but only to the extent provided in paragraph (2).
(2)Amount of allowable costs.—
(A)Maximum amount allowed.—The amount of the costs allowable under paragraph (1) in any case may not exceed the amount equal to 80 percent of the amount of the costs incurred, to the extent that the costs are determined to be otherwise allowable and allocable under the Federal Acquisition Regulation.
(B)Content of regulations.—Regulations issued for the purpose of subparagraph (A) shall provide for appropriate consideration of the complexity of procurement litigation, generally accepted principles governing the award of legal fees in civil actions involving the Federal Government as a party, and other factors as may be appropriate.
(3)When otherwise allowable costs are not allowable.—In the case of a proceeding referred to in paragraph (1), contractor, subcontractor, or personal services contractor costs otherwise allowable as reimbursable costs under this subsection are not allowable if—
(A) the proceeding involves the same contractor, subcontractor, or personal services contractor misconduct alleged as the basis of another criminal, civil, or administrative proceeding; and
(B) the costs of the other proceeding are not allowable under subsection (b).
(Pub. L. 111–350, § 3, Jan. 4, 2011, 124 Stat. 3789; Pub. L. 112–239, div. A, title VIII, § 828(d), Jan. 2, 2013, 126 Stat. 1841; Pub. L. 114–261, § 1(b)(2)(A), Dec. 14, 2016, 130 Stat. 1362.)

CITE AS: 41 USC 4310