41 U.S.C. § 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](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section7103&num=0&edition=prelim); and (2) is appealable in the manner provided in [section 7104(a) of this title](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title41-section7104/a&num=0&edition=prelim).