10 U.S.C. § 3750 — Proceeding costs not allowable

Page 2543 TITLE 10—ARMED FORCES § 3750 Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section and amendment by Pub. L. 116–283 effective Jan. 1, 2022, with additional provisions for delayed im- plementation and applicability of existing law, see sec- tion 1801(d) of Pub. L. 116–283, set out as an Effective Date of 2021 Amendment note preceding section 3001 of this title. § 3749. Burden of proof on contractor In a proceeding before the Armed Services 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 reimburse- ment from the Department of Defense is in issue, the burden of proof shall be upon the con- tractor to establish that those costs are reason- able. (Added and amended Pub. L. 116–283, div. A, title XVIII, § 1832(a), (h), Jan. 1, 2021, 134 Stat. 4218, 4222.) Editorial Notes CODIFICATION The text of subsec. (j) of section 2324 of this title, which was transferred to this section and amended by Pub. L. 116–283, § 1832(h), was based on Pub. L. 100–370, § 1(f)(3)(A), July 19, 1988, 102 Stat. 846; Pub. L. 103–355, title II, § 2101(a)(10), Oct. 13, 1994, 108 Stat. 3308. PRIOR PROVISIONS A prior section 3749 was renumbered section 7279 of this title. AMENDMENTS 2021—Pub. L. 116–283, § 1832(h), transferred subsec. (j) of section 2324 of this title to this section and struck out subsec. (j) designation and heading ‘‘Contractor To Have Burden of Proof’’ at beginning. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section and amendment by Pub. L. 116–283 effective Jan. 1, 2022, with additional provisions for delayed im- plementation and applicability of existing law, see sec- tion 1801(d) of Pub. L. 116–283, set out as an Effective Date of 2021 Amendment note preceding section 3001 of this title. § 3750. Proceeding costs not allowable (a) DEFINITIONS.—In this section: (1) COSTS.—The term ‘‘costs’’, with respect to a proceeding— (A) means all costs incurred by a con- tractor or subcontractor, or personal serv- ices contractor, whether before or after the commencement of any such proceeding; and (B) includes— (i) administrative and clerical expenses; (ii) the cost of legal services, including legal services performed by an employee of the contractor or subcontractor, or per- sonal services contractor; (iii) the cost of the services of account- ants and consultants retained by the con- tractor or subcontractor, or personal serv- ices contractor; and (iv) the pay of directors, officers, and employees of the contractor or subcon- tractor, or personal services contractor for time devoted by such directors, officers, and employees to such proceeding. (2) PENALTY.—The term ‘‘penalty’’ does not include restitution, reimbursement, or com- pensatory damages. (3) PROCEEDINGS.—The term ‘‘proceeding’’ in- cludes an investigation. (b) IN GENERAL.—Except as otherwise provided in this section, costs incurred by a contractor or subcontractor, or personal services contractor in connection with any criminal, civil, or ad- ministrative proceeding commenced by the United States, by a State, or by a contractor or subcontractor, or personal services contractor employee submitting a complaint under section 4701 of this title are not allowable as reimburs- able costs under a covered contract, sub- contract, 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 4701(a)(1) of this title; and (2) results in a disposition described in sub- section (c). (c) COVERED DISPOSITIONS.—A disposition re- ferred to in subsection (b)(2) is any of the fol- lowing: (1) In the case of a criminal proceeding, a conviction (including a conviction pursuant to a plea of nolo contendere) by reason of the vio- lation or failure referred to in subsection (b). (2) In the case of a civil or administrative proceeding involving an allegation of fraud or similar misconduct, a determination of con- tractor or subcontractor, or personal services contractor liability on the basis of the viola- tion or failure referred to in subsection (b). (3) In the case of any civil or administrative proceeding, the imposition of a monetary pen- alty or an order to take corrective action under section 4701 of this title by reason of the violation or failure referred to in subsection (b). (4) A final decision— (A) to debar or suspend the contractor or subcontractor, or personal services con- tractor; (B) to rescind or void the contract, sub- contract, or personal services contract; or (C) to terminate the contract, subcontract, or personal services contract for default; by reason of the violation or failure referred to in subsection (b). (5) A disposition of the proceeding by con- sent or compromise if such action could have resulted in a disposition described in para- graphs (1), (2), (3), or (4). (d) COSTS ALLOWED BY SETTLEMENT AGREE- MENT IN PROCEEDING COMMENCED BY UNITED STATES.—In the case of a proceeding referred to in subsection (b) that is commenced by the United States and is resolved by consent or com- promise pursuant to an agreement entered into by a contractor or subcontractor, or personal services contractor and the United States, the costs incurred by the contractor or subcon- tractor, or personal services contractor in con- Page 2544 TITLE 10—ARMED FORCES § 3750 nection with such proceeding that are otherwise not allowable as reimbursable costs under such subsection may be allowed to the extent specifi- cally provided in such agreement. (e) COSTS SPECIFICALLY AUTHORIZED IN PRO- CEEDING COMMENCED BY STATE.—In the case of a proceeding referred to in subsection (b) that is commenced by a State, the head of the agency or Secretary of the military department con- cerned that awarded the covered contract, sub- contract, or personal services contract involved in the proceeding may allow the costs incurred by the contractor or subcontractor, or personal services contractor in connection with such pro- ceeding as reimbursable costs if the agency head or Secretary 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 per- sonal services contract, or (2) specific written instructions of the agency or military depart- ment. (f) OTHER ALLOWABLE COSTS.— (1) IN GENERAL.—Except as provided in para- graph (3), costs incurred by a contractor or subcontractor, or personal services contractor in connection with a criminal, civil, or admin- istrative proceeding commenced by the United States 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 such 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 para- graph (1) in any case may not exceed the amount equal to 80 percent of the amount of the costs incurred, to the extent that such costs are determined to be otherwise allow- able and allocable under the Federal Acqui- sition Regulation. (B) CONTENT OF REGULATIONS.—Regulations issued for the purpose of subparagraph (A) shall provide for appropriate consideration of— (i) the complexity of procurement litiga- tion; (ii) generally accepted principles gov- erning the award of legal fees in civil ac- tions involving the United States as a party; and (iii) such other factors as may be appro- priate. (3) WHEN OTHERWISE ALLOWABLE COSTS ARE NOT ALLOWABLE.—In the case of a proceeding referred to in paragraph (1), contractor or sub- contractor, or personal services contractor costs otherwise allowable as reimbursable costs under this subsection are not allowable if— (A) such proceeding involves the same con- tractor or subcontractor, or personal serv- ices contractor misconduct alleged as the basis of another criminal, civil, or adminis- trative proceeding; and (B) the costs of such other proceeding are not allowable under subsection (b). (Added and amended Pub. L. 116–283, div. A, title XVIII, § 1832(a), (i), Jan. 1, 2021, 134 Stat. 4218, 4222; Pub. L. 117–81, div. A, title XVII, § 1701(b)(11), Dec. 27, 2021, 135 Stat. 2134.) Editorial Notes CODIFICATION The text of subsec. (k) of section 2324 of this title, which was transferred to this section and amended by Pub. L. 116–283, § 1832(i), was based on Pub. L. 100–700, § 8(b), Nov. 19, 1988, 102 Stat. 4636; Pub. L. 101–189, div. A, title VIII, § 853(a)(1)(A), (b)(3), Nov. 29, 1989, 103 Stat. 1518; Pub. L. 103–355, title II, § 2101(a)(11), Oct. 13, 1994, 108 Stat. 3308; Pub. L. 112–239, div. A, title VIII, § 827(g), Jan. 2, 2013, 126 Stat. 1836; Pub. L. 114–261, § 1(b)(1), Dec. 14, 2016, 130 Stat. 1362. PRIOR PROVISIONS Prior sections 3750 to 3756 were renumbered sections 7280 to 7286 of this title, respectively. AMENDMENTS 2021—Subsec. (a). Pub. L. 116–283, § 1832(i)(1)(A), (B), redesignated par. (6) of section 2324(k) of this title as subsec. (a) of this section, inserted heading, substituted ‘‘In this section’’ for ‘‘In this subsection’’ in introduc- tory provisions, and redesignated subpars. (B), (C), and (A) as pars. (1) to (3), respectively. Subsec. (a)(1). Pub. L. 116–283, § 1832(i)(1)(C), inserted heading and redesignated cls. (i) and (ii) and its subcls. (I) to (IV) as subpars. (A) and (B) and cls. (i) to (iv), re- spectively. Subsec. (a)(2), (3). Pub. L. 116–283, § 1832(i)(1)(D), (E), inserted heading. Subsec. (b). Pub. L. 116–283, § 1832(i)(2), (3), redesig- nated par. (1) of subsec. (k) of section 2324 of this title as subsec. (b) of this section, inserted heading, sub- stituted ‘‘this section’’ for ‘‘this subsection’’ and ‘‘sec- tion 4701’’ for ‘‘section 2409’’, redesignated inline sub- pars. (A) and (B) as pars. (1) and (2), respectively, and reformatted text, and substituted ‘‘in section 4701(a)(1)’’ for ‘‘in subparagraphs (A) through (C) of sec- tion 2409(a)(1)’’ in par. (1) and ‘‘subsection (c)’’ for ‘‘paragraph (2)’’in par. (2). Subsec. (c). Pub. L. 116–283, § 1832(i)(2), (4)(A)–(D), re- designated par. (2) of section 2324(k) of this title as sub- sec. (c) of this section, inserted heading, substituted ‘‘subsection (b)(2)’’ for ‘‘paragraph (1)(B)’’ in introduc- tory provisions, and ‘‘subsection (b)’’ for ‘‘paragraph (1)’’ wherever appearing, and redesignated subpars. (A) to (E) as pars. (1) to (5), respectively. Subsec. (c)(3). Pub. L. 116–283, § 1832(i)(4)(E), sub- stituted ‘‘section 4701’’ for ‘‘section 2409’’. Subsec. (c)(4). Pub. L. 116–283, § 1832(i)(4)(F), redesig- nated cls. (i) to (iii) as subpars. (A) to (C), respectively. Subsec. (c)(5). Pub. L. 116–283, § 1832(i)(4)(G), sub- stituted ‘‘paragraphs (1), (2), (3), or (4)’’ for ‘‘subpara- graph (A), (B), (C), or (D)’’. Subsec. (d). Pub. L. 116–283, § 1832(i)(2), (5), redesig- nated par. (3) of section 2324(k) of this title as subsec. (d) of this section, inserted heading, and substituted ‘‘subsection (b)’’ for ‘‘paragraph (1)’’ and ‘‘such sub- section’’ for ‘‘such paragraph’’. Subsec. (e). Pub. L. 116–283, § 1832(i)(2), (6), redesig- nated par. (4) of section 2324(k) of this title as subsec. (e) of this section, inserted heading, and substituted ‘‘subsection (b)’’ for ‘‘paragraph (1)’’, ‘‘(1)’’ for ‘‘(A)’’, and ‘‘(2)’’ for ‘‘(B)’’. Subsec. (f). Pub. L. 116–283, § 1832(i)(2), (7)(A), (B), re- designated par. (5) of section 2324(k) of this title as sub- sec. (f) of this section, inserted heading, and redesig- nated subpars. (A) to (C) as pars. (1) to (3), respectively, and realigned margins. Subsec. (f)(1). Pub. L. 116–283, § 1832(i)(7)(A), (C), in- serted heading and substituted ‘‘paragraph (3)’’ for ‘‘subparagraph (C)’’, ‘‘subsection (b)’’ for ‘‘paragraph (1)’’, and ‘‘paragraph (2)’’ for ‘‘subparagraph (B)’’. Subsec. (f)(2). Pub. L. 116–283, § 1832(i)(7)(D)(i), (ii), in- serted heading and redesignated cls. (i) and (ii) as sub- pars. (A) and (B), respectively. Page 2545 TITLE 10—ARMED FORCES § 3750 Subsec. (f)(2)(A). Pub. L. 116–283, § 1832(i)(7)(D)(i), (iii), inserted heading and substituted ‘‘paragraph (1)’’ for ‘‘subparagraph (A)’’. Subsec. (f)(2)(B). Pub. L. 116–283, § 1832(i)(7)(D)(iv), (E), inserted heading, substituted ‘‘subparagraph (A)’’ for ‘‘clause (i)’’, inserted dash after ‘‘consideration of’’, and reorganized remainder of existing text into designated cls. (i) to (iii). Subsec. (f)(3). Pub. L. 116–283, § 1832(i)(7)(F), as amend- ed by Pub. L. 117–81, § 1701(b)(11), inserted heading, sub- stituted ‘‘paragraph (1)’’ for ‘‘subparagraph (A)’’ and ‘‘under this subsection’’ for ‘‘under this paragraph’’, in- serted dash after ‘‘not allowable if’’, redesignated inline cls. (i) and (ii) as subpars. (A) and (B), respec- tively, and reformatted text, and, in subpar. (B), sub- stituted ‘‘subsection (b)’’ for ‘‘paragraph (1)’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2021 AMENDMENT Amendment by Pub. L. 117–81 applicable as if in- cluded in the enactment of title XVIII of Pub. L. 116–283 as enacted, see section 1701(a)(2) of Pub. L. 117–81, set out in a note preceding section 3001 of this title and Ef- fective Date note below. EFFECTIVE DATE Section and amendment by Pub. L. 116–283 effective Jan. 1, 2022, with additional provisions for delayed im- plementation and applicability of existing law, see sec- tion 1801(d) of Pub. L. 116–283, set out as an Effective Date of 2021 Amendment note preceding section 3001 of this title. REGULATIONS Pub. L. 100–700, § 8(d), Nov. 19, 1988, 102 Stat. 4638, pro- vided that: ‘‘The regulations necessary for the imple- mentation of section 306(e) of the Federal Property and Administrative Services Act of 1949 [now 41 U.S.C. 4304] (as added by subsection (a)) and section 2324(k)(5) of title 10, United States Code [see 10 U.S.C. 3750(f)] (as added by subsection (b))— ‘‘(1) shall be prescribed not later than 120 days after the date of the enactment of this Act [Nov. 19, 1988]; and ‘‘(2) shall apply to contracts entered into more than 30 days after the date on which such regulations are issued.’’ SUBCHAPTER II—OTHER ALLOWABLE COST PROVISIONS Sec. 3761. Restructuring costs. 3762. Independent research and development costs: allowable costs. 3763. Bid and proposal costs: allowable costs. [3764, 3765. Repealed.] Editorial Notes AMENDMENTS 2021—Pub. L. 117–81, div. A, title XVII, § 1701(f)(5), (h)(2), Dec. 27, 2021, 135 Stat. 2139, 2140, amended sub- chapter heading generally and struck out items 3764 ‘‘Excessive pass-through charges’’ and 3765 ‘‘Institu- tions of higher education: reimbursement of indirect costs under Department of Defense contracts’’. Prior to amendment, subchapter heading read as follows: ‘‘SUB- CHAPTER II—OTHER ALLOWABLE COST PROVI- SIONS’’. Statutory Notes and Related Subsidiaries REPORT AND REGULATIONS ON EXCESSIVE PASS- THROUGH CHARGES Pub. L. 109–364, div. A, title VIII, § 852, Oct. 17, 2006, 120 Stat. 2340, as amended by Pub. L. 113–291, div. A, title X, § 1071(b)(3)(B), Dec. 19, 2014, 128 Stat. 3506; Pub. L. 115–232, div. A, title VIII, § 836(f)(5), Aug. 13, 2018, 132 Stat. 1871, provided that: ‘‘(a) COMPTROLLER GENERAL REPORT ON EXCESSIVE PASS-THROUGH CHARGES.— ‘‘(1) IN GENERAL.—Not later than 180 days after the date of the enactment of this Act [Oct. 17, 2006], the Comptroller General shall issue a report on pass- through charges on contracts or subcontracts (or task or delivery orders) that are entered into for or on behalf of the Department of Defense. ‘‘(2) MATTERS COVERED.—The report issued under this subsection— ‘‘(A) shall assess the extent to which the Depart- ment of Defense has paid excessive pass-through charges to contractors who provided little or no value to the performance of the contract; ‘‘(B) shall assess the extent to which the Depart- ment has been particularly vulnerable to excessive pass-through charges on any specific category of contracts or by any specific category of contractors (including any category of small business); and ‘‘(C) shall determine the extent to which any pro- hibition on excessive pass-through charges would be inconsistent with existing commercial practices for any specific category of contracts or have an un- justified adverse effect on any specific category of contractors (including any category of small busi- ness). ‘‘(b) REGULATIONS REQUIRED.— ‘‘(1) IN GENERAL.—Not later than May 1, 2007, the Secretary of Defense shall prescribe regulations to ensure that pass-through charges on contracts or sub- contracts (or task or delivery orders) that are entered into for or on behalf of the Department of Defense are not excessive in relation to the cost of work per- formed by the relevant contractor or subcontractor. ‘‘(2) SCOPE OF REGULATIONS.—The regulations pre- scribed under this subsection— ‘‘(A) shall not apply to any firm, fixed-price con- tract or subcontract (or task or delivery order) that is— ‘‘(i) awarded on the basis of adequate price com- petition; or ‘‘(ii) for the acquisition of a commercial prod- uct or a commercial service, as defined in sec- tions 103 and 103a, respectively, of title 41, United States Code; and ‘‘(B) may include such additional exceptions as the Secretary determines to be necessary in the in- terest of the national defense. ‘‘(3) DEFINITION.—In this section, the term ‘exces- sive pass-through charge’, with respect to a con- tractor or subcontractor that adds no, or negligible, value to a contract or subcontract, means a charge to the Government by the contractor or subcontractor that is for overhead or profit on work performed by a lower-tier contractor or subcontractor (other than charges for the direct costs of managing lower-tier contracts and subcontracts and overhead and profit based on such direct costs). ‘‘(4) REPORT.—Not later than one year after the date of the enactment of this Act [Oct. 17, 2006], the Secretary of Defense shall submit to the congres- sional defense committees [Committees on Armed Services and Appropriations of the Senate and the House of Representatives] a report on the steps taken to implement the requirements of this subsection, in- cluding— ‘‘(A) any standards for determining when no, or negligible, value has been added to a contract by a contractor or subcontractor; ‘‘(B) any procedures established for preventing ex- cessive pass-through charges; and ‘‘(C) any exceptions determined by the Secretary to be necessary in the interest of the national de- fense. ‘‘(5) EFFECTIVE DATE.—The regulations prescribed under this subsection shall apply to contracts award-