10 U.S.C. § 3744 — Specific costs not allowable

Page 2538 TITLE 10—ARMED FORCES § 3744 agency determines that a proposal for settle- ment of indirect costs submitted by a con- tractor includes a cost determined to be unal- lowable in the case of such contractor before the submission of such proposal, the head of the agency shall assess a penalty against the contractor in an amount equal to two times the amount of the disallowed cost allocated to covered contracts for which a proposal for set- tlement of indirect costs has been submitted. (c) WAIVER OF PENALTY.—The Federal Acquisi- tion Regulation shall provide for a penalty under subsection (b) to be waived in the case of a contractor’s proposal for settlement of indi- rect costs when— (1) the contractor withdraws the proposal be- fore the formal initiation of an audit of the proposal by the Federal Government and re- submits a revised proposal; (2) the amount of unallowable costs subject to the penalty is insignificant; or (3) the contractor demonstrates, to the con- tracting officer’s satisfaction, that— (A) it has established appropriate policies and personnel training and an internal con- trol and review system that provide assur- ances that unallowable costs subject to pen- alties 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 PRO- CEDURE TO DISALLOWANCE OF COST AND ASSESS- MENT OF PENALTY.—An action of the head of an agency under subsection (a) or (b)— (1) shall be considered a final decision for the purposes of section 7103 of title 41; and (2) is appealable in the manner provided in section 7104(a) of title 41. (Added and amended Pub. L. 116–283, div. A, title XVIII, § 1832(a), (c), Jan. 1, 2021, 134 Stat. 4218, 4219.) Editorial Notes CODIFICATION The text of subsec. (a) of section 2324 of this title, which was transferred to this section by Pub. L. 116–283, § 1832(c)(1), was based on Pub. L. 99–145, title IX, § 911(a)(1), Nov. 8, 1985, 99 Stat. 682; Pub. L. 102–484, div. A, title VIII, § 818(a)(1)(A), Oct. 23, 1992, 106 Stat. 2457; Pub. L. 103–355, title II, § 2101(a), Oct. 13, 1994, 108 Stat. 3306. The text of subsec. (b) of section 2324 of this title, which was transferred to this section and amended by Pub. L. 116–283, § 1832(c), was based on Pub. L. 99–145, title IX, § 911(a)(1), Nov. 8, 1985, 99 Stat. 682; Pub. L. 102–484, div. A, title VIII, § 818(a)(1)(B), (2), Oct. 23, 1992, 106 Stat. 2457, 2458; Pub. L. 103–355, title II, § 2101(a)(2), Oct. 13, 1994, 108 Stat. 3306. The text of subsec. (c) of section 2324 of this title, which was transferred to this section by Pub. L. 116–283, § 1832(c)(1), was based on Pub. L. 102–484, div. A, title VIII, § 818(a)(5), Oct. 23, 1992, 106 Stat. 2458; Pub. L. 103–355, title II, § 2101(a)(3), Oct. 13, 1994, 108 Stat. 3307. The text of subsec. (d) of section 2324 of this title, which was transferred to this section by Pub. L. 116–283, § 1832(c)(1), was based on Pub. L. 99–145, title IX, § 911(a)(1), Nov. 8, 1985, 99 Stat. 683; Pub. L. 102–484, div. A, title VIII, § 818(a)(4), Oct. 23, 1992, 106 Stat. 2458; Pub. L. 103–355, title II, § 2101(a)(4), Oct. 13, 1994, 108 Stat. 3307; Pub. L. 111–350, § 5(b)(19)(A), (B), Jan. 4, 2011, 124 Stat. 3844. PRIOR PROVISIONS A prior section 3743 was renumbered section 7273 of this title. AMENDMENTS 2021—Pub. L. 116–283, § 1832(c)(1), transferred subsecs. (a) to (d) of section 2324 of this title to this section. Subsec. (b). Pub. L. 116–283, § 1832(c)(2), realigned mar- gins of pars. (1) and (2) and inserted par. (2) heading. 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. § 3744. Specific costs not allowable (a) SPECIFIC COSTS.—The following costs are not allowable under a covered contract: (1) Costs of entertainment, including amuse- ment, diversion, and social activities and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratu- ities). (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 pro- ceeding (including filing of any false certifi- cation) brought by the United States where the contractor is found liable or has pleaded nolo contendere to a charge of fraud or similar proceeding (including filing of a false certifi- cation). (4) Payments of fines and penalties resulting from violations of, or failure to comply with, Federal, State, local, or foreign laws and regu- lations, 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 ad- vance such payments in accordance with ap- plicable provisions of the Federal Acquisition Regulation. (5) Costs of membership in any social, din- ing, 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 memora- bilia, including models, gifts, and souvenirs. (10) Costs for travel by commercial aircraft which exceed the amount of the standard com- mercial fare. (11) Costs incurred in making any payment (commonly known as a ‘‘golden parachute payment’’) which is— (i) in an amount in excess of the normal severance pay paid by the contractor to an Page 2539 TITLE 10—ARMED FORCES § 3744 1 So in original. There are two pars. (16). employee upon termination of employment; and (ii) is paid to the employee contingent upon, and following, a change in manage- ment control over, or ownership of, the con- tractor or a substantial portion of the con- tractor’s assets. (12) Costs of commercial insurance that pro- tects 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 con- tractor 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 in- volved under the customary or prevailing practice for firms in that industry providing similar services in the United States, as deter- mined under the Federal Acquisition Regula- tion. (14) Costs of severance pay paid by the con- tractor 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 re- sult of the closing of, or the curtailment of ac- tivities at, a United States military facility in that country at the request of the government of that country. (15) Costs incurred by a contractor in con- nection with any criminal, civil, or adminis- trative proceeding commenced by the United States or a State, to the extent provided in section 3750 of this title. (16) 1 Costs of compensation of any con- tractor employee for a fiscal year, regardless of the contract funding source, to the extent that such compensation exceeds $625,000 ad- justed 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 season- ally adjusted, except that the Secretary of De- fense may establish exceptions for positions in the science, technology, engineering, mathe- matics, medical, and cybersecurity fields and other fields requiring unique areas of expertise upon a determination that such exceptions are needed to ensure that the Department of De- fense has continued access to needed skills and capabilities. (16) 1 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 deter- mination that such exceptions are needed to ensure that the executive agency has contin- ued access to needed skills and capabilities. (17) Costs incurred by a contractor in con- nection with a congressional investigation or inquiry into an issue that is the subject mat- ter of a proceeding resulting in a disposition as described in section 3750(c) of this title. (b) WAIVER OF SEVERANCE PAY RESTRICTIONS FOR FOREIGN NATIONALS.— (1) HEAD OF AN AGENCY DETERMINATION.—Pur- suant to the Federal Acquisition Regulation and subject to the availability of appropria- tions, the head of an agency awarding a cov- ered contract (other than a contract to which subsection (d) applies) may waive the applica- tion of the provisions of subsections (a)(13) and (a)(14) to that contract if the head of the agen- cy determines that— (A) the application of such provisions to the contract would adversely affect the con- tinuation of a program, project, or activity that provides significant support services for members of the armed forces stationed or deployed outside the United States; (B) the contractor has taken (or has estab- lished 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 for- eign nationals; and (C) the payment of severance pay is nec- essary in order 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 per- formed services under the contract or is nec- essary to comply with a collective bar- gaining agreement. (2) SOLICITATION TO INCLUDE STATEMENT ABOUT WAIVER.—The head of an agency shall include in the solicitation for a covered con- tract a statement indicating— (A) that a waiver has been granted under paragraph (1) for the contract; or (B) whether the head of the agency will consider granting such a waiver, and, if the agency head will consider granting a waiver, the criteria to be used in granting the waiv- er. (3) DETERMINATION TO BE MADE BEFORE CON- TRACT AWARDED.—The head of an agency shall make the final determination regarding whether to grant a waiver under paragraph (1) with respect to a covered contract before award of the contract. (c) ESTABLISHMENT OF DEFINITIONS, EXCLU- SIONS, LIMITATIONS, AND QUALIFICATIONS.—The provisions of the Federal Acquisition Regulation implementing this subchapter may establish ap- propriate definitions, exclusions, limitations, and qualifications. (d) SPECIFIC COSTS UNDER MILITARY BANKING CONTRACTS RELATING TO FOREIGN NATIONALS.— (1) AUTHORITY.—The Secretary of Defense may provide in a military banking contract that the provisions of subsections (a)(13) and (a)(14) shall not apply to costs incurred under the contract by the contractor for payment of mandated foreign national severance pay. The Secretary may include such a provision in a military banking contract only if the Sec- retary determines, with respect to that con- Page 2540 TITLE 10—ARMED FORCES § 3744 tract, that 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. (2) DEFINITIONS.—In paragraph (1): (A) MILITARY BANKING CONTRACT.—The term ‘‘military banking contract’’ means a contract between the Secretary and a finan- cial institution under which the financial in- stitution operates a military banking facil- ity outside the United States for use by members of the armed forces stationed or deployed outside the United States and other authorized personnel. (B) MANDATED FOREIGN NATIONAL SEVER- ANCE PAY.—The term ‘‘mandated foreign na- tional severance pay’’ means severance pay paid by a contractor to a foreign national employee the payment of which by the con- tractor is required in order to comply with a law that is generally applicable to a signifi- cant number of businesses in the country in which the foreign national receiving the payment performed services under the con- tract. (3) EXCEPTION FOR FOREIGN-OWNED FINANCIAL INSTITUTIONS.—Paragraph (1) does not apply to a contract with a financial institution that is owned or controlled by citizens or nationals of a foreign country, as determined by the Sec- retary of Defense. Such a determination shall be made in accordance with the criteria set out in paragraph (1) of section 4(g) of the Buy American Act (as added by section 7002(2) of the Omnibus Trade and Competitiveness Act of 1988) and the policy guidance referred to in paragraph (2)(A) of that section. (Added and amended Pub. L. 116–283, div. A, title XVIII, § 1832(a), (d), Jan. 1, 2021, 134 Stat. 4218, 4219.) Editorial Notes REFERENCES IN TEXT Section 4 of the Buy American Act (as added by sec- tion 7002(2) of the Omnibus Trade and Competitiveness Act of 1988), referred to in subsec. (d)(3), was section 4 of act Mar. 3, 1933, ch. 212, title III, as added Pub. L. 100–418, title VII, § 7002(2), Aug. 23, 1988, 102 Stat. 1545. Section 4, which was classified to section 10b–1 of former Title 41, Public Contracts, was omitted from the Code in view of section 7004 of Pub. L. 100–418 which provided that the amendment by Pub. L. 100–418 which enacted section 4 ceased to be effective on Apr. 30, 1996. Section 4 was subsequently repealed by Pub. L. 111–350, § 7(b), Jan. 4, 2011, 124 Stat. 3855, which Act enacted Title 41, Public Contracts. CODIFICATION The text of subsec. (e) of section 2324 of this title, which was transferred to this section and amended by Pub. L. 116–283, § 1832(d), was based on Pub. L. 99–145, title IX, § 911(a)(1), Nov. 8, 1985, 99 Stat. 683; Pub. L. 99–190, § 101(b) [title VIII, § 8112(a)(1)], Dec. 19, 1985, 99 Stat. 1185, 1223; Pub. L. 100–180, div. A, title VIII, § 805(a), Dec. 4, 1987, 101 Stat. 1126; Pub. L. 100–370, § 1(f)(2)(A), July 19, 1988, 102 Stat. 846; Pub. L. 100–456, div. A, title III, § 322(a), title VIII, § 832(a), Sept. 29, 1988, 102 Stat. 1952, 2023; Pub. L. 100–700, § 8(b)(1), Nov. 19, 1988, 102 Stat. 4636; Pub. L. 101–189, div. A, title III, § 311(a)(1), Nov. 29, 1989, 103 Stat. 1411; Pub. L. 101–510, div. A, title XIII, § 1301(10), Nov. 5, 1990, 104 Stat. 1668; Pub. L. 102–190, div. A, title III, § 346(a), Dec. 5, 1991, 105 Stat. 1346; Pub. L. 102–484, div. A, title XIII, § 1352(b), Oct. 23, 1992, 106 Stat. 2559; Pub. L. 103–355, title II, § 2101(a)(5), (b), Oct. 13, 1994, 108 Stat. 3307, 3308; Pub. L. 104–106, div. D, title XLIII, § 4321(b)(9)(A), Feb. 10, 1996, 110 Stat. 672; Pub. L. 105–85, div. A, title VIII, § 808(a)(1), Nov. 18, 1997, 111 Stat. 1836; Pub. L. 111–350, § 5(b)(19)(C), (D), Jan. 4, 2011, 124 Stat. 3844; Pub. L. 112–81, div. A, title VIII, § 803(a), Dec. 31, 2011, 125 Stat. 1485; Pub. L. 113–66, div. A, title VIII, § 811(a), Dec. 26, 2013, 127 Stat. 806; Pub. L. 113–67, div. A, title VII, § 702(a)(2), Dec. 26, 2013, 127 Stat. 1189; Pub. L. 113–291, div. A, title VIII, § 857, Dec. 19, 2014, 128 Stat. 3460. PRIOR PROVISIONS A prior section 3744 was renumbered section 7274 of this title. AMENDMENTS 2021—Pub. L. 116–283, § 1832(d)(1), transferred subsec. (e) of section 2324 of this title to this section, struck out subsec. (e) designation and heading ‘‘Specific Costs Not Allowable’’ at beginning, and redesignated pars. (1), (3), (4), and (2) as subsecs. (a) to (d), respectively. Subsec. (a). Pub. L. 116–283, § 1832(d)(2)(A), (B), after redesignation of par. (1) of section 2324(e) of this title as subsec. (a) of this section, inserted heading and re- designated subpars. (A) to (Q) as pars. (1) to (17), respec- tively, including two subpars. (P) both redesignated par. (16). Subsec. (a)(15). Pub. L. 116–283, § 1832(d)(2)(C), sub- stituted ‘‘section 3750 of this title’’ for ‘‘subsection (k)’’. Subsec. (a)(17). Pub. L. 116–283, § 1832(d)(2)(D), sub- stituted ‘‘section 3750(c) of this title’’ for ‘‘subsection (k)(2)’’. Subsec. (b). Pub. L. 116–283, § 1832(d)(3)(A), (B), after redesignation of par. (3) of section 2324(e) of this title as subsec. (b) of this section, inserted heading and re- designated subpars. (A) to (C) as pars. (1) to (3), respec- tively. Subsec. (b)(1). Pub. L. 116–283, § 1832(d)(3)(A), (C), in- serted heading, substituted ‘‘subsection (d)’’ for ‘‘para- graph (2)’’ and ‘‘subsections (a)(13) and (a)(14)’’ for ‘‘paragraphs (1)(M) and (1)(N)’’ in introductory provi- sions, and redesignated cls. (i) to (iii) of former section 2324(e)(3)(A) as subpars. (A) to (C), respectively. Subsec. (b)(2). Pub. L. 116–283, § 1832(d)(3)(D), inserted heading, realigned margin, redesignated cls. (i) and (ii) of former section 2324(e)(3)(B) as subpars. (A) and (B), respectively, and, in subpar. (A), substituted ‘‘para- graph (1)’’ for ‘‘subparagraph (A)’’. Subsec. (b)(3). Pub. L. 116–283, § 1832(d)(3)(E), inserted heading, realigned margin, and substituted ‘‘paragraph (1)’’ for ‘‘subparagraph (A)’’. Subsec. (c). Pub. L. 116–283, § 1832(d)(4), after redesig- nation of par. (4) of section 2324(e)(3) of this title as subsec. (c) of this section, inserted heading and sub- stituted ‘‘this subchapter’’ for ‘‘this section’’. Subsec. (d). Pub. L. 116–283, § 1832(d)(5)(A), (B), after redesignation of par. (2) of section 2324(e)(3) of this title as subsec. (d) of this section, inserted heading, redesig- nated subpars. (A) to (C) as pars. (1) to (3), respectively, and realigned margins. Subsec. (d)(1). Pub. L. 116–283, § 1832(d)(5)(A), (C), in- serted heading and substituted ‘‘subsections (a)(13) and (a)(14)’’ for ‘‘paragraphs (1)(M) and (1)(N)’’. Subsec. (d)(2). Pub. L. 116–283, § 1832(d)(5)(D), inserted par. heading, substituted ‘‘paragraph (1)’’ for ‘‘subpara- graph (A)’’ in introductory provisions, redesignated cls. (i) and (ii) of former section 2324(e)(2)(B) as subpars. (A) and (B), respectively, and inserted subpar. headings. Subsec. (d)(3). Pub. L. 116–283, § 1832(d)(5)(E), inserted heading and substituted ‘‘Paragraph (1)’’ for ‘‘Subpara- graph (A)’’. Page 2541 TITLE 10—ARMED FORCES § 3745 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. REGULATIONS Pub. L. 99–145, title IX, § 911(b), Nov. 8, 1985, 99 Stat. 685, provided that: ‘‘(1) Not later than 150 days after the date of the en- actment of this Act [Nov. 8, 1985], the Secretary of De- fense shall prescribe the regulations required by sub- sections (e) and (f) of [former] section 2324 of title 10, United States Code [see 10 U.S.C. 3744, 3745], as added by subsection (a). Such regulations shall be published in accordance with section 22 of the Office of Federal Pro- curement Policy Act ([former] 41 U.S.C. 418b) [now 41 U.S.C. 1707]. ‘‘(2) The Secretary shall review such regulations at least once every five years. The results of each such re- view shall be made public.’’ § 3745. Required regulations (a) IN GENERAL.—The Federal Acquisition Reg- ulation shall contain provisions on the allow- ability of contractor costs. Such provisions shall define in detail and in specific terms those costs which are unallowable, in whole or in part, under covered contracts. (b) SPECIFIC ITEMS.—The regulations shall, at a minimum, clarify the cost principles applica- ble 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 indi- rectly) executive branch action on regulatory and contract matters (other than costs in- curred in regard to contract proposals pursu- ant to solicited or unsolicited bids). (6) Community relations. (7) Dining facilities. (8) Professional and consulting services, in- cluding 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 RE- SOLVED.—The Federal Acquisition Regulation shall require that a contracting officer not re- solve any questioned costs until he has ob- tained— (A) adequate documentation with respect to such costs; and (B) the opinion of the contract auditor on the allowability of such costs. (2) PRESENCE OF CONTRACT AUDITOR.—The Federal Acquisition Regulation shall provide that, to the maximum extent practicable, the contract auditor be present at any negotiation or meeting with the contractor regarding a de- termination of the allowability of indirect costs of the contractor. (3) SETTLEMENT TO REFLECT AMOUNT OF INDI- VIDUAL QUESTIONED COSTS.—The Federal Acqui- sition Regulation shall require that all cat- egories of costs designated in the report of the contract auditor as questioned with respect to a proposal for settlement be resolved in such a manner that the amount of the individual questioned costs that are paid will be reflected in the settlement. (Added and amended Pub. L. 116–283, div. A, title XVIII, § 1832(a), (e), Jan. 1, 2021, 134 Stat. 4218, 4221.) Editorial Notes CODIFICATION The text of subsec. (f) of section 2324 of this title, which was transferred to this section and amended by Pub. L. 116–283, § 1832(e), was based on Pub. L. 99–145, title IX, § 911(a)(1), Nov. 8, 1985, 99 Stat. 683; Pub. L. 100–456, div. A, title VIII, § 826(a), Sept. 29, 1988, 102 Stat. 1952; Pub. L. 100–463, title VIII, § 8105(a), Oct. 1, 1988, 102 Stat. 2270–36; Pub. L. 100–526, title I, § 106(a)(2), Oct. 24, 1988, 102 Stat. 2625; Pub. L. 102–484, div. A, title X, § 1052(26)(A), Oct. 23, 1992, 106 Stat. 2500; Pub. L. 103–355, title II, § 2101(a)(6), (c), Oct. 13, 1994, 108 Stat. 3307, 3308, as amended by Pub. L. 104–106, div. D, title XLIII, § 4321(a)(5), Feb. 10, 1996, 110 Stat. 671. Another section 1832(e) of Pub. L. 116–283 amended section 3746 of this title. PRIOR PROVISIONS A prior section 3745 was renumbered section 7275 of this title. AMENDMENTS 2021—Pub. L. 116–283, § 1832(e)(1)(A), transferred sub- sec. (f) of section 2324 of this title to this section and struck out subsec. (f) designation and heading ‘‘Re- quired Regulations’’ at beginning. Subsec. (a). Pub. L. 116–283, § 1832(e)(1)(B), (2), redesig- nated first two sentences of par. (1) of section 2324(f) of this title as subsec. (a) of this section and inserted heading. Third sentence designated subsec. (b). Subsec. (b). Pub. L. 116–283, § 1832(e)(1)(C), (3), des- ignated third sentence of subsec. (a) as subsec. (b), in- serted heading, and redesignated subpars. (A) to (Q) as pars. (1) to (17), respectively. Subsec. (c). Pub. L. 116–283, § 1832(e)(1)(D), (E), (4), re- designated pars. (2) to (4) of section 2324(f) of this title collectively as subsec. (c) of this section and individ- ually as pars. (1) to (3), respectively, thereof, inserted subsec. and par. headings, and realigned margins. 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. REGULATIONS For requirement to prescribe and periodically review regulations required by this section (formerly subsec. (f) of section 2324 of this title), see section 911(b) of Pub. L. 99–145, set out as a note under section 3744 of this title.